WOOL growers would be prudent to consider forward marketing into the New Year as global conditions and market indicators point to a continued decline in prices.
It was another positive week for the auction market, with all indicators registering modest gains and a small premium working its way back into the finer microns. Buyer interest before auction centred on the nearby months as exporters were keen to lock away anything of value from the forward market as well as the physical offer board. A couple of early trades set the sentiment for a positive week for wool.
The front of the board has solid bidding out to October against patchy offers in 19 micron and 21 micron. From a grower’s perspective, selling wool in spring above 2000 cents is usually a no-brainer. The challenge comes from seeing it higher earlier in the year. Having realistic offers up against bids helps exporters selling forward, knowing they are able to offset some risk through the forwards. For growers, it is always easier to sell into a rising market than to be chasing bids on the way down. While the auction market is in recess the exporters are still conducting business and usually keen to offset some risk onto the forward market.
So while it is sensible for growers to consider hedging spring exposures around market levels, looking at covering New Year sales is also prudent. Analysts continue to highlight the current poor global economic conditions, wool’s current overvalued position in relation to competing apparel fibres and the historic cyclic nature of the wool market, as indicators point to a continued decline in prices into the New Year.
The only way of ensuring you will participate in any forward business is by having orders in the market. This week saw April 2020 trade at the same level as October 2019 micron for 21 micron, at about 130 cents under the cash rate. For a nine-month forward that is a reasonable discount. Witness the last couple of months to see just how quickly value can be taken out of the market.
Projected forward trading levels for next week
Month 19 micron 21 micron 28 micron
August 2020 cents 2000 cents 1000 cents
September 2000 cents 1975 cents 990 cents
October 1950 cents 1925 cents 970 cents
Nov/Dec 1930 cents 1905 cents 960 cents
Jan/June 2020 1900 cents 1875 cents 930 cents
July/Dec 2020 1850 cents 1825 cents 900 cents
20 micron August 2000 cents 7.5 tonnes
21 micron September 1975 cents 5 tonnes
October 1900 cents 18 tonnes
April 1900 cents 5 tonnes
28 micron December 955 cents 2.5 tonnes
Total 38 tonnes