Downward trajectory for wool markets

A DISAPPOINTING week all round for both the spot and forward markets. The week started firmly with reports of modest demand following last week’s retraction in prices.

Buyers grabbed nearby cover at small discounts to cash. The forward market gap between bid and offer widened as growers stuck firmly to cash levels out to June. Buyers unable to attract offshore business at these levels are bidding conservatively.

Early indications of the market finding a base were quashed Thursday last week as the market continued its downward trajectory from mid-February highs. Both the spot and forward markets were hampered by a stronger Australian dollar.

The market drivers remain unchanged with balance between tight supply and sluggish demand the key to medium-term direction. Risk remains high along the pipeline. The challenge for all participants is the establishment of fair forward values.

Growers are faced with conflicting factors. Firstly, a price trend that clearly, with the benefit of hindsight, debunked the forward discount that has been in place in the past few years.

Opposed to that are the outright price levels forward. Although historically high and representing sound margin management, does it represent fair value?

In this high-risk landscape, some insurance and certainty are important. Forward levels from the exporters will be guided by the processors and their anticipation of the degree of demand destruction brought on by higher prices coupled with embedded costs of running machinery and building stocks.

We expect next week to track in similar fashion with any demand interest likely to be reflected in better bidding in the forwards. Volatility in this tight supply environment is the likely constant.