Wool Market Reports

Rollercoaster wool prices disrupt orderly marketing

Michael Avery, Southern Aurora Markets partner, January 24, 2020

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.

Leave a Reply to Peter Small Cancel Reply

Your email address will not be published. Required fields are marked *

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.

Comments

  1. Jack Cleary, January 27, 2020

    The amazing thing about demand is that it rises and falls. An attempt by Gunn and others to stabilise wool pricing caused the demise, for years, of wool pricing.

    After two hundred years of up and downs look-at us, look-at-us “Southern Aurora Marketing” registered latter half of 2017 reports that the ‘market’ is ‘disruptive’ of ‘orderliness’ Well, well, well do tell…when you meet your second registration term you may have discovered ‘that’s how it works’. You are no ‘Jack the giant killer’ lads, just some minnows trying to make your fortune as the mouse that roared.

  2. Peter Small, January 25, 2020

    The Australian wool industry’s history is littered with many monumental blunders. The greatest undoubtedly is the introduction of the Reserve Price Scheme (RPS), before its ultimate demise. Australia was just starting to establish a mature and liquid wool futures market when the introduction of the RPS quashed all that. The RPS also removed all the punters in the industry from speculators in Australia to textile factory workers in Italy, who when wool prices in Australia were depressed put their cars out on the street and stacked a few bales in the garage, speculating on an eventual price rise.
    Then, of course, the massive stock losses along the entire wool pipeline with the collapse of the RPS sapped liquidity from the market. This followed by the massive deterioration in production since the RPS collapse, rendering wool growing unprofitable to many, has resulted in poor volumes for sale.
    This too has resulted in the exit of many large trading houses like Itochu, who had the liquidity to take stock-holding positions and even out the ups and downs in the market.
    Growers need a liquid wool futures market more than processors, particularly the larger integrated operators, as growers only sell on one or two sales a year whereas wool processors can buy across many markets and average out their stock price.
    The question is, can we restore liquidity in our industry from wool futures to the greasy market, or are we to continue to keep shooting ourselves in the foot as with the current mulesing debacle?

  3. Digby Stretch, January 25, 2020

    Volatility means opportunity. Embrace it. Forward and futures markets may evolve from it. The 1980s and 1990s are testament to the dangers of orderly marketing.

Get Sheep Central's news headlines emailed to you -
FREE!