Forward wool market trading close to auction prices at low volumes

Michael Avery, Southern Aurora Markets partner, April 12, 2019

AUSTRALIA’S spot auction wool market continued its trend of the last two months this week, with Merino fleece lines again easing and crossbreds continuing to be in demand.

Forward markets held at last week’s levels early in the week, with both 19 micron and 21 micron trading at near to cash. The 19 micron contract traded in May at 2275 cents (cash 2281 cents) and 21 micron in June is at 2250 cents (cash 2251 cents).

The forward curve flattens as we head into the new season. There are limited quantities bid out to December 2020, with processors willing to take the risk on some stock of 19 micron at 2150 cents. Although at a 130 cent discount to the current cash level, it is in line with the average price for last November (2160 cents) and above the two-year average for 19 micron of 2120 cents.

Closer in, exporters are looking to hedge some forward business, but demand remains tepid, so volume is low. The 21 micron contract is bid at 2230 cents out to June. This is 20 cents under cash, but could represent fair value as the market has fallen 120 cents in the last seven weeks. This highlights the fact that risk is at a premium.

Although the market trend remains bearish, exporters are keen to reduce risk where possible as the tight supply increases the likelihood of continued volatility.

Crossbred wool forward pricing remains at historically high levels, but is well under the record high cash levels. The 28 micron contract bid into the spring at 1100 cents and 30 micron at 900 cents. With 28 micron at 1236 cents and 21 micron at 2251 cents, the ratio sits at 55pc — the highest for the last three years for crossbreds to medium Merinos.

Trade summary

19 micron May                                                2275 cents            5 tonnes

21 micron June                                                2250 cents          10 tonnes

28 micron August                                           1075 cents             4 tonnes

28 micron September                                    1100 cents          10 tonnes

Total 29 tonnes

Projected forward trading levels for next week

Month                                 19 micron c/kg                  21 micron c/kg

April                                     2270 cents                         2235 cents

May                                     2245 cents                         2230 cents

June/July                            2245 cents                         2230 cents

Aug/Sept                            2150 cents                         2090 cents

Oct/Nov                             2150 cents                         2040 cents

Dec/Jan                              2150 cents                         2000 cents

Feb/Jun e 2020                  2150 cents                         2000 cents

July/Dec 2020                    2150 cents                         2000 cents


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