FORWARD wool markets struggled to find their bearings this week as the spot auction market continued its crazy rollercoaster ride.
By any measure the auction market is becoming more difficult to predict as volatility continues to run over 40 percent on the two key Merino indices — 19 and 21 micron.
The risk in the market is highlighted by the fact that in the last decade the Eastern Market Indicator (EMI) has only shifted by more than 50 cents in a single day on 19 occasions. Nine have occurred this year, seven in the last two months.
There have been only two occasions where the EMI has moved more than 100 cents in a single day and both occurred in the last six weeks. This type of movement makes it impossible to manage margins if relying solely on a single day spot price strategy.
Unfortunately, the current sawtooth nature of the spot market makes setting fair price targets difficult for buyers and sellers. The average daily movement this 2019/20 season is 38 cents or 2.4pc. Volumes on the forwards this week have reflected this difficulty.
The only trades prior to the auction opening were significantly under cash – 21 micron in October at 1680 cents and 28 micron in November at 920 cents. The auction market closed for the week very close to these levels – the 21 micron Micron Price Guide lost 133 cents to close at 1685 cents and the 28 micron MPG lost 70 cents to close at 922 cents.
Offshore interest will dictate whether we find support next week. Key technical support is around these new levels, so hopefully buying interest will return and new forward levels will be established enabling growers and exporters alike to mitigate some risk.
Early indications are that some covering will be done by exporters in the pre-Christmas window.
Month 19 micron 21 micron
October 1660-1690 cents 1630-1660 cents
November 1630-1650 cents 1600-1630 cents
December 1600-1620 cents 1570-1590 cents
October 21 micron 1680 cents 12 tonnes
November 28 micron 920 cents 5 tonnes
Total 17 tonnes