Early Christmas present for wool forward market

Michael Avery, Southern Aurora Markets partner, December 20, 2019

WOOL auctions this week delivered a little Christmas cheer to end a year that almost all participants in the pipeline are glad is behind us.

While bushfires and drought still cloud the near term, we hope the New Year provides us with a more stable landscape.

The first half of the season gave us record volatility, with Merino qualities dropping between five and six hundred cents recovering three to four hundred only give back half of those gains again in November. This disruptive trend lead to issues along the pipeline with contract renegotiations, dear stock overhangs, defaults and overseas custom quarrels causing exporters grief.

This week’s spot auction continued the trend, with the last two weeks seeing all qualities gain around 80 cents. This rally gave a welcome boost to the forward markets. The 21 micron contract traded early in the week for February maturity at 1690 cents, just under cash. It rose to 1730 cents prior to the auction opening Tuesday, peaking Wednesday at 1766 cents, before closing at 1760 cents.

A strong basis is now in place for growers to set targets and strategies into the new year to mitigate price risk and manage margins. Hopefully, we will see off shore demand pick up with phase one of the China/USA tariff negotiations pointing to a positive outcome.

We expect interest to be maintained into the recess at levels close to cash for the first quarter of 2020.

Trade summary

February 19 micron                                         1720 cents                          2.5 tonnes

February 21 micron                                        1690/1766 cents              52.5 tonnes

June 21 micron                                                1705 cents                           5 tonnes

Total 60 tonnes

Southern Aurora Markets wishes everyone a happy, holy and safe Christmas and New Year.


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