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Crossbred wool: the exception that proves the rule

by Michael Avery, Southern Aurora Markets partner, 03 December 2018

IN a season where volatility has reigned supreme, this week’s spot auction wool market was overall quiet and stable, with the exception of the crossbreds, and prices mostly realigned after last week’s dramatic rise.

The forward market was a little dull as sellers’ expectation of a continuation of the relief rally were quickly quashed. Interest from the buy side waned as the medium micron lost momentum and forward interest from processors still lagged behind cash. With consumer confidence receding and ongoing trade concerns, the ability for the market to hold at this current level is doubtful.

The interest in the crossbreds continued with 28 micron and 30 micron bid over cash early in the week and trading at 740 cents for 30 micron. Bids remained solid, lifting as the spot prices rose, with January to June bidding closing at 880 to 900 cents for 28 micron. There were solid bids on the 21 micron contract with 2050 cents on the bid out to June.

The retention of bidding levels one and two years out — 19 micron at 1930 cents for November 2019 and 1880 cents for November 2020 — gives rise to the confidence that a base will be formed well above the long-term 10-year average of 1470 cents for 19 micron and closer to the three-year average of 1840 cents.

A forward hedging strategy is important for all participants in the pipeline to reduce risk and increase confidence. Bringing growers and end-users closer together to share risk, manage margins and moderate volatility should be a collective goal.

Expectations remain that the last two weeks of auctions will follow a similar pattern, with buyers selectively filling commitments where necessary and avoiding holding stock over the break. The result will be varying differences on specific lots, with good style and high strength commanding premiums. The overall tone is expected to be moderate.

Trade summary

19 micron                           August 2035 cents                            5 tonnes

30 micron                           January 740 cents                             5 tonnes

30 micron                           February 740 cents                          15 tonnes

30 micron                           April 740 cents                                  2 tonnes

Total 27 tonnes

Projected forward trading levels for next week

Month                                 19 micron c/kg                  21 micron c/kg

Dec                                      2170 cents                         2120 cents

Jan                                       2160 cents                         2100 cents

Feb                                       2100 cents                         2050 cents

March                                 2060 cents                         2050 cents

Apr/May                             2040 cents                         2050 cents

June/July                            2025 cents                         2050 cents

Aug/Sept                            1985 cents                         1920 cents

Oct/Dec                              1950 cents                         1900 cents

Source: Southern Aurora Markets.

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