FORWARD wool markets were stagnant this week, with very little interest coming from the grower side.
Traders populated both sides of the market as they looked to balance positions. Demand signals remain poor, with exporters unable to sell at levels the tight supply conditions demand.
The spot auction remained firm across all Merino types, but fine crossbreds had mixed results. The only trading was in the late autumn/early winter, with May and June executed at 2165 cents and 2160 cents respectively. Some improved bidding has come through in the spring with 19 micron bid to 2140 cents and 21 micron at 2010. Growers are justifiable cautious at these levels having to deal with the ongoing drought and, with the benefit of hindsight, the fact that forward discounts were unwarranted.
Unfortunately, we continue to be in a higher risk landscape. Macro-economic signals suggest a drop in commodity prices. Hopefully for wool this will be mitigated slightly by historically low supply and an Australian-US dollar exchange rate that at best will hold in the low 70s.
With our largest processor, China, reducing imports and consumer confidence low, the outlook is for higher volatility with a weakening bias.
The current heat wave conditions and production issues are the priority, but margin management on the clip that is coming should not be ignored. Setting historically high target will guarantee margins and spread the risk along the pipeline.
Based on the last two years’ data, the spot auction market is around 85 percentile level, which puts 19 micron at 2292 cents, 21 micron at 2220 cents and 28 micron at 946 cents. These could be good starting points to mitigate risk in the short term window. Medium and longer term hedging would likely look to target more to the 70 to 80 percentile range, depending on individual situation and appetite to risk.
Jan 2017/2019 19 micron 21 micron 28 micron
85 percentile 2292 cents 2220 cents 946 cents
80 percentile 2270 cents 2170 cents 915 cents
75 percentile 2210 cents 2130 cents 890 cents
70 percentile 2155 cents 2030 cents 860 cents
21 micron May 2165 cents 3 tonnes
21 micron June 2150/2160 cents 15 tonnes
Total 18 tonnes
Month 19 micron c/kg 21 micron c/kg
Jan 2300 cents 2230 cents
Feb 2250 cents 2150 cents
March 2230 cents 2150 cents
Apr/May 2210 cents 2145 cents
June/July 2180 cents 2150 cents
Aug/Sept 2140 cents 2040 cents
Oct/Dec 2140 cents 2040 cents
Jan/Feb 2060 cents 1980 cents