Wool supply concerns prompt lift in forward market contracts

Michael Avery, Southern Aurora Markets partner, February 1, 2019

WOOL volumes through the forward market increased this week as buyers looked to cover positions due to ongoing concerns of supply.

The auction market started strongly this week with indent operators keen to fill orders prior to the Chinese New Year. Crossbreds were in demand and this followed through into the forwards with 40 tonnes traded in the May/June window at solid levels, delivering excellent hedging opportunities. The 21 micron wools traded at season high records of 2190 cents into Easter.

The strong Australian dollar and continued modest demand saw interest in forwards taper off towards the end of the week with most Merino qualities losing ground into the auction close. We see this trend continuing in weeks to come as processors balance the need to keep machinery with the inability to pass the current price levels onto their downstream customers. Risk levels remain high and volatility will be the constant.

We anticipate that the market will be under pressure next week with Chinese New Year capping demand as our biggest customer takes a pause. Trading on forwards should remain steady as buyers look to cover risk and keep exposure to the volatility to a minimum.

Trade summary

19 micron April                                 2230 cents                        10 tonnes

19 micron May                                 2230 cents                         10 tonnes

19 micron Oct                                  2140 cents                            5 tonnes

19 micron Nov                                 2128 cents                            5 tonnes

20 micron Feb                                  2255 cents                            5 tonnes

21 micron March                             2190 cents                            5 tonnes

21 micron April                                 2185/90 cents                   20 tonnes

21 micron Oct                                  2060 cents                           2 tonnes

28 micron May                                   950/960 cents                 30 tonnes

28 micron June                                   970 cents                          10 tonnes

19 micron April put strike               2200 cents premium 50   2.5 tonnes

Total 104.5 tonnes

Projected forward trading levels for next week

Month                                 19 micron c/kg                  21 micron c/kg

Feb                                       2250                                    2180

March                                 2230                                    2180

Apr/May                             2220                                    2175

June/July                            2180                                    2150

Aug/Sept                            2140                                    2060

Oct/Dec                              2140                                    2050

Jan/Feb                               2060                                    1980


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