FORWARD wool marketing activity is going longer-term as the auction market experienced another challenging series of sales last week.

The temporary embargo on South African wool exports to China caused a sharp reaction to a spot auction market that is already under short-term supply pressure. The volatility that has been consistent over the last year continued, with the stand-alone sale in Melbourne rallying strongly on Tuesday, with Chinese indent buyers dominating. This enabled growers who had orders in the market to fill their forward hedges.

The auction price rally held on Wednesday, with all centres aligning as Sydney and Fremantle matched Melbourne levels. The spot auction market closed Thursday irregular as forward orders failed to eventuate, and the market gave back half of the earlier gains.

Forward activity was highlighted by 19 microns trading out almost two years to January 2021 and the continued interest in the spring and summer of 2019/2020 cents. The June 21 micron contract peaked at 2260 cents and 28 microns traded at 1000 cents, a new forward high.

Forward levels next week are a little hard to predict. Buyers are expected to be a little cautious having had to absorb another round of record levels at auction. Middle Merinos (20 microns and coarser) and crossbreds, breeched records set back in September 2018. With 50,000 bales on offer next week the ability of the market to hold at this level will be tested.

The supply of good quality medium micron wool will again be limited. The impact of demand destruction, indicated by the poor first half export figures (down 20 percent), will be the key in the short to medium term direction of both the spot and forward markets. Early indications are that the autumn forward levels will hold around 2280 cents for 19 micron and 2250 cents for 21 micron through May and June. Interest on crossbreds is maintained at 1000 cents for 28 micron and 900 cents for 30 micron from March through June.

Trade summary

19 micron May                                                2310 cents                         10 tonnes

19 micron June                                                2260 cents                             3 tonnes

19 micron Oct                                                 2180/2260 cents                30 tonnes

19 micron Nov                                                2180/2225 cents                 25 tonnes

19 micron Dec                                                 2125 cents                              3 tonnes

19 micron Jan                                                  2020-2150/2155 cents        7.5 tonnes

19 micron Feb                                                 2020-2200 cents                    7.5 tonnes

19 micron Oct                                                 2020-2075                                2 tonnes

19 micron Dec                                                 2020-2075                                2 tonnes

19 micron Jan                                                  2021-2075                                2 tonnes

21 micron Feb                                                 2290 cents                               2 tonnes

21 micron June                                                2240/2260 cents                     4 tonnes

21 micron Oct                                                 2100/2150 cents                     5 tonnes

21 micron Nov                                                2100/2150 cents                    5 tonnes

21 micron Dec                                                 2100 cents                              2.5 tonnes

28 micron May                                                   998 cents                              6 tonnes

28 micron June                                                1000 cents                              4 tonnes

Total 117.5 tonnes

Projected forward trading levels for next week

Month                                                19 micron c/kg                                 21 micron c/kg

Feb                                                      2330 cents                                        2300 cents

March                                                2300 cents                                        2260 cents

Apr/May                                            2300 cents                                        2250 cents

June/July                                           2280 cents                                        2250 cents

Aug/Sept                                           2180 cents                                        2100 cents

Oct/Dec                                             2160 cents                                        2080 cents

Jan/Feb                                              2150 cents                                        2040 cents