EXPORTERS bought available forward offers this week after the spot auction market rose strongly on Wednesday.
The 19 micron contract traded at 1855 cents for late January. This was 10 cents over cash of the close as the market steadied to finish unchanged Thursday.
The 19 micron contract traded earlier in the week at 1820 cents and again on the close Thursday at 1830 cents as the rally lost steam.
The current lack of volume on the forwards has been attributed to caution by growers selling into a market dominated by exporters that have access to better intelligence and are trying to reduce their risk.
While both those comments are true, the function of a forward market is to spread the risk along the pipeline and not have it resting on one sector’s shoulder. No one can predict the future even with the best information. Timing is important and picking the optimum time to buy or sell is important, but it is linking to your overall enterprise risk. This is borne out by trade volumes highest in February and May this year that coincided with peaks in the spot market. Exporters were actively buying forward because they could sell offshore, not because they envisaged the record prices continuing ad infinitum.
Almost 100 percent of the trades between May and July matured in favour of the seller, just like they finished generally in the buyer’s favour throughout the long-term rise.
Risk management is about margin management. Exporters are naturally about buying at the best possible price. More importantly they are looking at buying at a level either to cover their current sales and reduce their exposure or future sales where they anticipate they can lock in a margin.
Growers should also be looking to maximise their returns, but also with an eye to reducing risk. Having some portion of production locked in forward still seems a sound tactic. Timing is important, with rallies in the spot market usually bringing the best opportunities.
Global market news has generally been more positive, but reports this morning out of China have raised doubts on the direction of the USA/China trade negotiations due to President Trump’s “impulsive nature.”
Next week will again be interesting. Hopefully, Thursday’s pull back into the close that saw Fremantle down 20 cents is just a steadying. The trading levels next week will be reliant on export sales over the weekend.
Indicative trading levels for next week
19 micron 21 micron
November 1820 cents 1760 cents
December 1800 cents 1750 cents
January/March 1780 cents 1740 cents
April/June 1740 cents 1680 cents
November 21 micron 1780 cents 2 tonnes
November 28 micron 965 cents 5 tonnes
December 19 micron 1820/1830 cents 6 tonnes
December 21 micron 1765 cents 14 tonnes
January 19 micron 1855 cents 2.5 tonnes
February 28 micron 975 cents 5 tonnes
Total 34.5 tonnes
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