THIS 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.
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.