Wool forward market trading ranges expected to remain volatile

Mike Avery, Southern Aurora Wool. February 17, 2017

Southern Aurora Wool logo dec-2016THIS week’s forward market for wool reflected the value of having hedging levels in the market as sentiment ebbed and flowed.

The $A/US traded in a wide band and the auction market moved around on variations in quality and quantity of supply. Both buyers and sellers continue to battle with the option of certainty of price against the chance of missed opportunity. This was particular noticeable in the finer microns with trading ranges this week in the prompt months varying by 20 to 30 cents.

The current curve reflects the concern of the trade on the ability of the market to hold medium to longer term at these historically high levels.

It is anticipated that trading ranges will remain volatile in the near term. On the fine wools we expect pre-Easter demand on the 19 micron contract to deliver a trading range in March and April of 1700 to 1735 cents. May and June could see a wider range of 1660-1700 cents, reflecting the current time risk. On the 21 micron contract we could see a band from 1390-1410 cents pre-Easter and 1370-1400 cents as we move toward the season’s end.

New season levels were patchy throughout the week although it was pleasing to see trades in 18 and 19 microns. Both these trades were over the 85 percentile band for their micron category, which is an excellent starting point hedge 15 months forward.

Options for 19 microns traded for May at a 35 cent premium cost and a 1675 cent strike delivering fair value on current volatility modelling.

Trade summary

March           19 micron             1730/1750 cents     17 tonnes

April              19 micron             1700/1730 cents     22.75 tonnes

April              21 micron             1400/1405 cents     16 tonnes

May              19 micron              1700 cents                  3 tonnes

May              19 micron option strike 1675 cents premium 35 cents 5 tonnes

June              18 micron              1850 cents                  3 tonnes

June              19 micron              1680 cents                  5 tonnes

June              21 micron              1400 cents                14 tonnes

Dec               21 micron               1350 cents                  7 tonnes

April 2018   19 micron               1600 cents                10 tonnes

June 2018   18 micron               1770 cents                   3 tonnes

Total  105.75 tonnes

Source: Southern Aurora Wool.


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