Wool forward market stagnates as grower opportunities go begging

Mike Avery, Southern Aurora Markets partner – wool, September 21, 2018

THE wool forward market was stagnant this week with participants looking for direction from offshore.

The spot auction market lost ground with the softness in the medium wools that was evident last week, seeping into the finer qualities.

Sentiment is quite mixed, with the buyers uncertain on the balance of factors that are influencing the spot and forward markets. The current price structure is dampening short and medium term demand, with end users unable to execute new business at these levels. Countering this bearish outlook is the current low level of stocks off shore and the supply concerns for the coming season, which has the latest clip forecast at -5.7 percent and anecdotal evidence even lower.

Bidding in the forwards was a little muted as buyers reassessed risk. However, levels still remain in the 85 to 90 percentile range with 19.0 micron bid in November at 2260 cents per kilogram, December at 2240c/kg and January at 2200c/kg. Similar levels are bid for 21 micron with November at 2180c/kg, December at 2160c/kg and 2100c/kg for January.

While, with the advantage of hindsight, growers could argue there was no need for a forward hedging strategy over the past two years, given the sustained rise in the auction market over this period, the current volatile price dynamics tell another story.

Growers should be looking at becoming price makers, not price takers, for their clip. By understanding the cost of production and setting targeted profit margins through forward hedging, growers can gain certainty over their wool returns. The percentage of the clip to hedge will vary depending on the individual grower’s appetite for risk and any production concerns.

Projected forward trading levels for next week

Month                                 19 micron c/kg                  21 micron c/kg

Oct                                       2300                                    2180

Nov                                      2260                                    2150

Dec                                      2240                                    2150

Jan                                       2200                                    2100

Feb                                       2180                                    2080

May/June                           2150                                    2050

Jan/Dec                              2100                                    2000

Source: Southern Aurora Markets.


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