FORWARD wool market trading this week reflected the strength of the medium micron sector, with two thirds of the week’s trades focused on 21 and 22 microns.
The balance of the trades in the 18-19 micron band delivered strong outright prices, as exporters looked for value against the spot market values.
Exporters remain wary and bids for spring and beyond reflected the inferred risk of better supply and price fatigue that processors are experiencing. Trades on 21 microns into the New Year delivered hedge levels of 1930 cents, which were higher than the then record prices received at auction. The March 2018 auction average for the 21 micron Micron Price Guide was 1892 cents and for April 1925 cents.
The spot market continues to be driven by lack of supply in the medium wools. This is graphically illustrated by the closing quotes from AWEX: 19 micron 2288 cents, 19.5 micron 2281 cents, 20 micron 2278 cents and 21 micron 2280 cents.
Tight supply is expected to dominate market direction for the remainder of the current season and should deliver strong outright levels on forwards. The risk level of a correction is growing in the minds of processors and exporters. Inventory costs have risen 68 percent in 18 months.
The timing and extent of the correction is difficult to predict, making strategic hedge decisions a challenge for buyers and sellers. This is reflected in the pricing of options, with few sellers wanting to take on the risk.
Hedging at the current forward levels would appear to be an easy decision. A value of 2000 cents-plus for 21 micron into the spring and 1930 cents into next autumn is delivering a guaranteed return of between $2400 and $2500 per bale. With the aid of hindsight, hedging forward over the last 18 months has delivered negative results. In essence, this is no different than being disappointed in taking car insurance and not having an accident. Both buyer and seller need to find a fair value forward level to deliver a degree of certainty. The value of certainty is more important than the fear of lost opportunity.
Anticipated levels next week
Month 19 micron 21 micron
June 2240 cents 2240 cents
July 2210 cents 2200 cents
Aug 2120 cents 2080 cents
Sept 2100 cents 2050 cents
Oct 2100 cents 2030 cents
Nov 2080 cents 2000 cents
Dec 2040 cents 1980 cents
July 21 micron 2200 cents 2 tonnes
September 19 micron 2100 cents 2.5 tonnes
September 21 micron 2005/2050 cents 6.5 tonnes
September 22 micron 2050 cents 5 tonnes
October 18 micron 2295 cents 2 tonnes
October 19 micron 2110 cents 2.5 tonnes
October 21 micron 2005/2010 cents 14.5 tonnes
November 19 micron 2100 cents 2 tonnes
November 21 micron 1950/2005 cents 6.5 tonnes
December 18 micron 2255 cents 2.5 tonnes
December 19 micron 2050 cents 2 tonnes
January 2019 18 micron 2255 cents 12 tonnes
March 2019 21 micron 1930 cents 10 tonnes
April 2019 21 micron 1930 cents 10 tonnes
Total 80.5 tonnes
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