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Healthy levels in forward wool selling

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Market Intelligence Report from The Woolmark Co has analysed the activities in forward contracts for wool over recent months. The report looked at opportunities available and the significant drop in prices in the weeks leading up to the end of the selling season, as well as the large and unexpected volumes placed on the market at the same time.


The stellar rise in the wool market in the last six months has led to some of the highest prices in Australian dollar terms for four years across some medium microns, with carding wools trading in record territory also the report says.


Naturally this has led to a significant movement of wool onto the market but as noted in the latest AWI weekly market report, wool buyers, exporters and wool users reacted severely to the heavily increased volume of wool hitting the market over the last sales of the selling season. The primary issue is the late notice of the staggering 38% and 21% increase in the last two consecutive weeks to finish the 2014/15 selling season.


In real terms this meant the trade had to suddenly find the capital to fund a potential A$33 million more in auction purchasing at the time of year where finances are usually being settled. Not surprisingly, the pass in rates went from just 1% for the week ending the 5th of June to 17% four weeks later.


Whether this is unacceptable volatility to burden the market with or the market at work is a matter of opinion.


Meanwhile a very healthy level of forward selling of wool has been taking place in recent months.


Elder’s Southern Zone Wool Manager Lachlan Brown reports that traded volume on the forward market has lifted enormously as many woolgrowers have seized the best opportunity since mid-2011 to lock in at historically high prices. Contracts have been booked as far out as December 2016 and for the full micron spectrum, from 18.5 to 32.


The majority of the trade has centred around 21 micron where levels of up to 1350 cents/cln kg have been contracted for late spring maturity, representing an increase of up to $350/bale in gross return on 2014. With premiums for finer Merino microns yet to return to long term average levels, many fine woolgrowers are opting to contract medium wool indicators to manage market downside risk. By doing so, they retain access to any potential lift in the premium fine wools over medium types.


Despite the recent softening in auction wool prices, forward prices have not decreased to the same degree. Interest remains from both the sell side (woolgrowers) and buy side (exporters/processors) as all industry participants attempt to manage the likely medium term wool price volatility.


Source: AWI

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