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