EXPECTATIONS of lower spot auction prices came to pass this week as the market drifted down for the third consecutive week.

Demand has waned as top makers continue to be unable to pass the current price structure down the pipeline.

The forward market levels remained relatively stable out into spring with trading levels only slightly off. The 19 micron contract traded at 2225 cents and 21 microns traded in September at 2130 cents and in October at 2115 cents.

These prices represent the 80th percentile for the last four years, giving growers a solid base into the new season and delivering some confidence for the processors. Exporters also are disinclined to sell the current market short at discount levels that processors demand without any cover.

The opportunity is ripe for growers for be price makers not price takers. Levels need to be set with short, medium and long term goals based around production costs, margin management and historical price structures.

We anticipate the market will continue to drift, but look to find a level. Retractions during the last part of this upward cycle have been in the order of 100 to 150 cents before finding a new base. The market for fine and medium Merinos has risen 200 cents since the new year and given up 40 percent of that rally to date. Analysts have the spot market losing a further 40 cents before looking for relief.

Trade summary

19 micron June                                                2250 cents                         3 tonnes

19 micron September                                    2225 cents                      10 tonnes

21 micron March                                            2270 cents                         5 tonnes

21 micron May                                                2230 cents                         5 tonnes

21 micron June                                                2250 cents                         5 tonnes

21 micron September                                    2130 cents                         5 tonnes

21 micron October                                         2115 cents                      14 tonnes

Total 47 tonnes

Projected forward trading levels for next week

Month                                                19.0 micron c/kg                             21 micron c/kg

March                                                2300 cents                                        2245 cents

Apr/May                                            2285 cents                                        2210 cents

June/July                                           2230 cents                                        2195 cents

Aug/Sept                                           2200 cents                                        2120 cents

Oct/Dec                                             2160 cents                                        2100 cents

Jan/Feb                                              2150 cents                                        2050 cents

Source: Southern Aurora Markets.