Forward wool market follows downturn in auction values

Michael Avery, Southern Aurora Markets partner, March 20, 2020

THE wool forward market chugged along this week as the spot auction sector tried to cope with the uncertainty that has become the new normal.

Trade volume was slightly higher, but prices reflected the increased risk that uncertainty brings.

Forward prices mirrored the auction with spring levels, peeling back 100 cents.

Early in the week, buyers factored a spot to spring/new year price discount of 100 cents (1750 cents spot to 1650 cents forward for 19 micron). By week’s end, the spot auction 19 micron index had fallen to 1653 cents and the October 19 micron forwards were trading at 1550 cents.

Trade was restricted in the main to spring 2020 through to winter 2021. This is, in some part, due to the uncertainty around nearby supply chain issues and flow of letters of credit. The weakening Australian currency has seen the EMI fall 18.6 percent in US$ terms this week.

Just where we go next week is anybody’s guess. Much will depend on the containment measures being put in place, their effectiveness and their short-term effect on supply chain flows.

Looking at the forward market, we are seeing some demand into the spring at discounted levels. The 19 micron contract is bid at 1550 cents in September through to October.

Forward prices in the near-term window will likely be harder to come by as exporters manage cash flow, volatility and contract execution.

Anticipated trading levels

19 micron                            21 micron

April/May/June                                1600 cents                          1570 cents

July/Aug/Sept                                                  1560 cents                          1500 cents

Oct/Nov/Dec                                                   1550 cents                          1510 cents

Jan/Feb/Mar                                                    1520 cents                          1480 cents

Trade summary

May 28 micron                                  855 cents                          5 tonnes

Sept 19 micron                                 1650 cents                          5 tonnes

Sept 21 micron                                 1605 cents                        12 tonnes

Oct 19 micron                                  1550/1650 cents               15 tonnes

Nov 19 micron                                 1650 cents                           5 tonnes

Dec 19 micron                                  1650 cents                           5 tonnes

Mar 2021 19 micron                       1650 cents                           5 tonnes

May 2021 19 micron                       1650 cents                           5 tonnes

June 2021 19 micron                       1650 cents                           5 tonnes

Total 62 tonnes


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