Uncertainty in wool landscape this week

LIGHT trading in the forward markets this week reflected the uncertainty that surrounds the wool landscape at all levels.

The balance of supply and demand will ultimately decide the outcome.

Demand creation and steady supply has seen the spot market rise to set new highs in the past two years. The ability of the pipeline to sustain these rises continues to be questioned. At some point, high prices will cause demand destruction to shift the balance in the market. The forward markets have indicated this shifting of balance for much of the past two years, continually trading at a discount to spot, anticipating a price-driven correction.

The current retraction in the spot market of around

100 cents is in line with the previous seven pullbacks over this two-year period.

The question is, does the market need to come back further to meet the expectations of downstream processors and consumers or will tight supply due to the sustained drought conditions halt the downward trend.

Forward market levels for October and November indicate exporters’ willingness to cover some of their risk at close to spot. Wool of 21.0 micron is bid at 2150 cents per kilogram, about 1 per cent under spot, while 19.0 micron for the same period is being bid at 2260c/kg, about 4 per cent under cash.

Light volume on the sell side from growers can be partly attributed to fatigue brought about by the significant discounts the forwards have delivered over the past two years.

The moderate discounts and the outright level should now be the focus.

Valuing price certainty for part of the next clip, particularly during these tough times, should be a strategy worth considering.