Buyers uncertain in wool market
THE forward market was stagnant this week, with participants looking for direction from off shore.
The spot market lost ground with the softness in the medium wools, evident last week, seeping into the finer qualities.
Sentiment is quite mixed, with the buyers uncertain on the balance of factors that are influencing both the spot and forward markets.
The current price structure is dampening short- and medium-term demand, with end users unable to execute new business at these levels. Countering this bearish outlook is the current low level of stocks off shore and the supply concerns for the coming season, which has the latest clip forecast at
-5.7 per cent and anecdotal evidence even lower.
Bidding in the forwards was a little muted as buyers reassessed risk.
However, levels still remain in the 85–90 percentile range with 19.0 micron bid in November at 2260 cents per kilogram, December at
2240c/kg and January at
Similar levels are bid for
21.0 micron with November at
2180c/kg, December at
2160c/kg and 2100c/kg for January.
While, with the advantage of hindsight, growers could argue there was no need for a forward hedging strategy over the past two years given the sustained rise in the auction market over this period, the current volatile price dynamics tell another story.
Growers should be looking at becoming price makers, not price takers, for their clip.
By understanding the cost of production and setting targeted profit margins through forward hedging, growers can gain certainty over their wool returns.
The percentage of the clip to hedge will vary depending on the individual grower’s appetite for risk and any production concerns.
By Mike Avery Southern Aurora Markets