JSE kraal for the wool trade

THE JSE launched a new wool futures contract this week as a hedge against the volatility in the wool price.

It would put “wool in the eyes of more potential consumers”, said Guillau du Toit, chairman of the National Woolgrowers’ Association of South Africa.

The settlement price would be determined by the Merino Indicator, an index created by Cape Wool SA.

The indicator reflects movements in the price by calculating a weighted average price of a basket of wool sold at a specific wool auction, then comparing it with the result of the previous auction. The auctions are conducted once a week in the Eastern Cape.

Investors do not need to buy the commodity; they can buy a future tracking it.

If, say, the price of wool is R100 per 1 000kg, but buyers believe it will increase, they

Industry joined with Vodacom to develop a sheep collar

can buy a futures contract at that price as protection.

Three months later, when the future expires, and the price has risen to R120, the wholesale buyer can sell the futures contract at this price, making a profit of R20 to use to buy wool at the higher price of R120.

The JSE’s launch of the futures contract comes as the industry looks to increase output by a further 25 million kilograms of wool annually.

This week marked the end of the 2016-17 season.

The association hailed it as better than last season, which was affected by the drought.

Farmers produced about 52.5 million kilograms, used mainly for clothing and carpets. Last season farmers produced 44 million kilograms.

“The wool industry has embarked on an ambitious growth plan. Subsequently we identified a significant opportunity to produce a further 25 million kilograms of wool annually,” Cape Wool CE Louis de Beer said.

“In devising plans to increase production we identified obstacles for which we had to find solutions.”

For example, the industry had joined forces with Vodacom to develop an affordable sheep tracking collar.

South Africa is home to between 4 500 and 9 000 commercial wool producers, and between 30 000 and 50 000 communal wool producers.