Forward wool trading pre-empts Australian auction market fall

Michael Avery, Southern Aurora Markets partner, July 1, 2019

FORWARD wool markets pre-empted last week’s auction market fall, with growers and the trade selling early in the week.

Even in low supply the poor demand and current sentiment led to all Merino qualities in the physical auctions coming off 80 cents. The selection of medium wools (21 and 22 microns) was so limited that AWEX were unable to provide a Micron Price Guide (MPG) quote in the eastern states.

On the forward markets, the 19 micron contract traded at 2045 cents for August pre-auction, but slipped to 1985 by the week’s end. September and October traded early at 1950 cents, but had fallen to 1900 cents by the close Thursday. The pattern in bidding and trading on the 21 micron contract was similar. Bidding in the early spring months around 1950 cents was ignored. December traded at 1900-1920 cents and closed bidding at 1875 cents.

Opinions remain divided on the length and depth of the current spot market retraction. Major cycle times have varied in from 6-12 months and the retraction from 20-40 percent. Fundamental indicators are hard to establish, with exporters are finding it difficult to write early spring/summer business.

Processors are remaining on the sidelines, with concerns over the ongoing trade tensions freezing any action.

There is some speculative forward bidding in modest volumes. These levels indicate early stage support on 19 microns at around 1870-1900 cents for September to December and 1850-1880 cents for 21 micron.

These levels are 21pc and 23pc respectively under the peaks reached on those microns. The 19 micron contract peaked at 2462 cents in August 2018 and in February this year for the 21 micron contract. A break of these levels would point to a deeper retraction.

From a percentile point of view, 1900 cents represents the 62nd level for 19 micron and 1880 cents the 74th level for 21 micron. The difference (basis) between 19 micron and 21 micron is still predicted to remain tight.

The current auction market has 21 micron trading at a premium to finer microns due to the lack of supply. Forward bidding indicates that the fine wool premium will return with the better spring selection, but will remain modest.

Projected forward trading levels for next week

Month                                 19 micron                           21 micron                           28 micron

July                                      1930 cents                         1900 cents                         1000 cents

August                                1920 cents                         1900 cents                            950 cents

September                         1910 cents                         1890 cents                            930 cents

October                              1900 cents                         1880 cents                            910 cents

Nov/Dec                             1890 cents                         1870 cents                            900 cents

Jan/June 2020                   1850 cents                         1800 cents                            870 cents

July/Dec 2020                    1850 cents                         1800 cents                            850 cents

Trade summary

19 micron July                   2025 cents                         5 tonnes

19 micron August             1985/2045 cents               7.5 tonnes

19 micron September      1905/1950 cents               7.5 tonnes

19 micron October           1900/1915 cents               7.5 tonnes

21 micron December       1900/1920 cents           14 tonnes

Total 41.5 tonnes


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