THE rollercoaster spot wool market continued this week, maintaining disruption along the pipeline.
Forward price spreads began the week wide, as buyers struggled to find off shore levels and indent orders remained irregular.
Growers are finding it difficult to make sense of the sawtooth nature of the market. Sell levels set during the Christmas break were raised early last week as most participants predicted a strong start to the New Year.
The 100-cent rise on day one was quickly reversed and after a few lacklustre days this week we find ourselves back at pre-Christmas levels. Exporters seemed to gain confidence that a base would be achieved soon and have bid up the nearby forwards flat to cash and reduced the discount into the autumn to 20 to 30 cents. Considering the current erratic daily price movements, although a discount, this would appear to underestimate the risk.
We have had daily movements of greater than 30 cents (in the 21 micron index) on more than 10 days in a calendar year on only six occasions during the last 25 years. Four of those in the last five years. The two highest were in 2018 (20 cents) and 2019 (29 cents).
What is even more disturbing in that we have had already three such movements in the first two weeks of 2020. This continued volatility is destructive to orderly marketing and fails to deliver accurate market signals.
A strong commercial trade market leads to forward markets. This enables product to be carried forward and provide product availability to the supply chain when needed. Without a combined strong commercial market/forward market supply chains can be reduced to volatile, opportunistic and/or erratic behaviour. We are currently experiencing this at present in the wool market with volatility running at historical highs.
A stronger forward market that shares the risk along the pipeline will mitigate some of the problems such as delay, defaults and renegotiations that have dogged the export sector over the last year.
Anticipated trading levels next week
19 micron 21 micron
January/February 1780 cents 1760 cents
March/April 1760 cents 1730 cents
May/June 1740 cents 1715 cents
Source – Southern Aurora Markets.