Time is right for forward strategy in unpredictable wool market

Michael Avery, Southern Aurora Markets partner - wool, November 2, 2018

THE time is right for a forward wool marketing strategy to smooth the bumps of an unpredictable auction market.

The week began with futures bid steadily, on the back of market sentiment suggesting a rally off the lows created over the last three weeks would follow.

Sellers failed to capitalise with only 10 tonnes traded into next autumn. The spot auction stabilised on Wednesday but, with little follow through from off shore, it continued its downward slide.

Processors continued to hold back buying, with reduced confidence that consumers will be willing to absorb these price levels into the future.

Uncertainty is the key factor driving the market down overriding the tight supply. Pass-in rates continued to rise, with 20pc of the fleece passed. Interestingly, this time last year, with prices 300 to 500 cents below current levels, only 1.5pc was passed.

Trying to predict the market with so many unknowns is fraught with danger. A forward strategy should contain elements that deliver a degree of price certainty and enable a grower to be a price-maker for a portion of their production and not always a price taker.

Better pricing points along the forward curve, with resultant improved liquidity, will enable the risk to be better distributed along the wool pipeline. The end result would be lower volatility, better market signals and the potential of improved growth of other risk tools such as guaranteed minimum price contracts (put options).

Trading levels are projected to be a bit lower next week but still above the 2000 cents per kilogram level for 21 micron for the most part of next year.

Trade summary

Month                                                Micron                 Price c/kg            Tonnage

November                                         21                          2130                       2.5 tonnes

May 2019                                          19                          2150                     10 tonnes

Total 12.5 tonnes

Projected forward trading levels for next week

Month                                 19 micron c/kg                  21 micron c/kg

Nov                                      2190                                    2080

Dec                                      2170                                     2100

Jan                                       2120                                    2050

Feb                                       2100                                    2030

Mar/June                           2070                                   2000

July/Dec                             2070                                   1980


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