BUYERS on the forward market tentatively returned through spring and early summer, but at significant discounts to cash indicating the difficulty of attracting future business.
It was probably the toughest week for the forward market since the start of the long-term rally from the spring of 2014.
Early trades for August 19 micron at 2050 cents and 28 micron at 1040 cents signalled a wait-and-see approach as we moved focus to the spot auction Wednesday. The largest single day fall since October confirmed the pessimism in the market. With only 19,000 bales on offer, expectations of a relief rally were quickly dashed.
The potential break of the long-term rally has analyst looking for the support levels. Views vary markedly depending on the interpretation of the beginning and level of the current rally and the magnitude of peaks and troughs. From a charting view point, first retracement from the 21 micron peak of 2370 cents would be 23.6 percent or 1810 cents — the next level 38.2pc or 1464 cents. Since 1995, we have had four such retracements of that magnitude.
Certainly, there are more negative than positives at the moment. Competing man-made fibres and cotton are already struggling under the poor global economic forecasts. Merino prices, although falling from their February peaks, have weathered the storm far better, but are now feeling the impact of the high-risk landscape.
With only three weeks of sales before the recess, averaging under 30,000 bales per week, supply will continue to remain tight. The key to any relief rally will be improvement in global sentiment. Softening of tensions between Presidents Xi and Trump would go a long way to restoring convenience. The Chinese processing sector could use a dose of stimulus from government orders, but both would be seem to be unlikely.
We do expect some positive activity next week. Any early spring orders that come through will likely be expressed in the forwards. Discounts are likely to be significant but may give growers opportunities still above the long term averages for both merinos and Crossbreds.
Projected forward trading levels for next week
Month 19 micron 21 micron 28 micron
June 2040 cents 1980 cents 1000 cents
July 2000 cents 1960 cents 1000 cents
Aug/Sept 2000 cents 1960 cents 950 cents
Oct/Dec 1950 cents 1900 cents 940 cents
Jan/June 2020 1920 cents 1870 cents 900 cents
Jul/Dec 2020 1900 cents 1850 cents 850 cents
Trade summary
21 micron August 2050 cents 5 tonnes
28 micron August 1040 cents 5 tonnes
Total 10 tonnes
HAVE YOUR SAY