THE volatile nature of the spot auction wool market was shown again last week, with the crossbreds giving back gains and the Merinos tightening slightly under short supply.

The forward market, although lacking in volume, presented opportunities again. Crossbred growers were again the beneficiary of strong forward bidding with 28 micron contract trading into the autumn at 900 cents and 30 microns at 730 cents. This ended up being 40 to 50 cents above cash by auction close Thursday. This highlights the wisdom of having realistic targets in place to take advantage of the volatility and price rallies.

Forward prices on the Merinos improved with 21 micron contract achieving 2100 cents for March, having traded as low as 1980 cents last month, when the spot auction corrected substantially. A short term base is in place, with the forwards bid at 2050 cents and above out to June 2019.

Discounts to cash have tightened particularly on the 21 micron contract. The first quarter of the year showing around a 1-1.5 discount and around 3pc in the second quarter. The basis to the finer Merinos remains tight with expectations that this will continue throughout the first half of next year, with the imbalance of supply favouring the coarser types.

It was a week of mixed messages. Confidence rose on the news that tensions between United States and China have been put on hold. Globally commodity prices rose on the news, but enthusiasm waned as the substance of the rhetoric was questioned.

A weaker Australian dollar exchange rate is supporting spot auction prices, but we are yet to see improvement in offshore prices. There is some negative sentiment attached to the larger than expected auction offering for the final week of sales prior to the recess.

Long-term levels one and two years out on the fine Merinos are 1930 cents for 19 microns for November 2019 and 1880 cents for November 2020. Expectations remain that the week of auctions will again show viability between microns and quality with buyers selectively filling commitments where necessary and avoiding taking stock into the break.

Trade summary

19 micron January                           2160 cents                         7 tonnes

21 micron December                       2125 cents                        15 tonnes

21 micron March                              2100 cents                         5 tonnes

28 micron March                                900 cents                        5 tonnes

28 micron April                                   900 cents                        5 tonnes

30 micron March                                730 cents                         2.5 tonnes

30 micron April                                   730 cents                         2.5 tonnes

Total 42 tonnes

Projected forward trading levels for next week

Month                  19 micron c/kg                  21 micron c/kg

Dec                       2170                                    2125

Jan                        2170                                    2100

Feb                        2120                                    2090

March                  2120                                    2090

Apr/May              2090                                    2060

June/July             2080                                    2050

Aug/Sept             1985                                    1920

Oct/Dec               1950                                    1900