Wool confidence going Forward

Riemann Agriculture Services Forward Wool and Southern Aurora Wool received a flurry of activity last week when 168,000 kilograms of 19 and 21 micron wool was put under contract for the next 12 months.

The week set a new price record for forward trading when 1455c was paid for 19-micron fleece for July 2016 delivery. The 21-micron class peaked at 1395c, for May 2016 delivery.

The week set a new price record for forward trading when 1455c was paid for 19-micron fleece for July 2016 delivery.

Last week’s volume sold nearly double the previous highest month of forward trading on Riemann when 89,500kg was traded forward in December 2015. 

The Australian Wool Exchange Eastern Market Indicator rose 19 cents last week, to 1287cc/kg– 17c shy of the seasonal high recorded in August.

Forward trades for next month loitered at 1380c, mid-July traded at 1355c and deals from August through to October 2016 were 1330-1350c. Early December 2016 contracts were secured at 1325c/kg clean in the 21-micron category.

Mecardo senior market analyst Robert Herrmann said the burst of forward trading was the result of opportunistic trading rather than risk management.

“While people are generally taking the view that the market has a positive outlook, less than one per cent of the Australian wool clip is forward sold at a time when the market is very good,” Mr Herrmann said.

“Regardless of the outlook, there is only one per cent of production considering the market risks ahead.

“Wool producing companies who treat the commodity like a return on investment tend to be more proactive forward sellers than others who look at the market for price spikes and opportunities.”

Australian Wool Network wool and sheep specialist Brent Squires said majority of woolgrowers were lured to physical market over forward trading.

Mr Squires said estimated only 30pc of woolgrowers utilised forward trading as a risk management to market their wool, with company owned enterprises the main supporters.

“A lot of the companies that run farms know their costs of production and what they’re interested in is making budget, rather than opportune prices,” he said. 

“Not to say the market won’t be above that point, and continue to move up, but they’re happy because they’ve met their costs while they were protected from a downside.” 

While the participation rate has grown from 16 to 89 in five years of trading, up until last week, the uptake of the marketing option had been slightly sluggish when competing with the solid physical auction.

"Wool is not perishable so, in some circumstances, if people think the price is low they can store it,” Riemann Agriculture executive director Tom Price said.

“With forward selling you can guarantee you will have income to cover your costs from your hedged wool  – and  you still have exposure to any potential rise in prices form the production that remains unhedged,” he said.  

“Of course for buyers it’s a protection against any potential future price rises. It allows for certainty in forward financial planning for buyers rather than ‘guessing what their costs’ will be one or two years out.”