Volatility as supply and demand fluctuates
WITH volatility the only constant in the wool market at the moment, as the balance of supply and demand fluctuates, there are plenty of opportunities for wool growers and buyers to use forward contracts to manage price risk.
But there’s a lack of consistency in the volume of both bids and offers on the forward market, reflecting the undervaluing of price certainty right along the wool pipeline. This is at odds with most agricultural commodity forward markets showing higher volumes in the current high-risk landscape.
We saw a complete turnaround in sentiment in both the auction and forwards last week. The grower interest in the post-Christmas period that we saw the week prior, evaporated early in the week following the positive spot auction close last Thursday.
Trading was restricted to the coming months of November and December with exporters and processors dominating the selling. November opened the week trading at 2240 cents per kilogram but was sold down to 2180c/kg on the close.
We expect bidding to be cautionary as traders weigh up the extent of the demand reduction brought on by the sustained high prices of the first two months of the new season, the ongoing trade war tension and the stubbornly firm Australian dollar. Volatility will remain as the only constant.
Sentiment remains bearish into the start of this week. Reports of difficult domestic conditions in China with their mills delaying committing orders to the market until absolutely necessary will add to the downward pressure. A weaker Australian may moderate the fall, but volatility and risk remain high.
In this current climate it is important all participants in the pipeline consider the value of certainty over the fear of lost opportunity.