Uncertainty ahead

“True genius resides in the capacity for evaluation of uncertain, hazardous, and conflicting information.” – Winston Churchill

The spot market resumes after the Easter Recess with no more clarity or direction than before. Both buyers and sellers were a little more cautious. The result being an easing of prices of between 1 and 2 per cent and a passed in rate lifting significantly for the first time this year to over 15 per cent.

The forward market offered little or no direction with the only trade going through being November 21.0 at 1455 (a slight discount to cash). The nearby window (May and June) is conservatively bid around 3% under spot and offered flat. Spring buyers are absent with sellers maintaining their focus on the 21.0 contract flat to cash.

The lack of liquidity in the forward market for the last 12 to 18 months raises the question of its viability and more over its accuracy and value to the pipeline. Conventional opinion suggests a forward market needs to be trading around 5% of the underlying physical market to provide pertinent forward signals to industry participants. Annual turnover is running at less than 1 percent.

A recent article on the subject by Andrew Woods from ICS suggested that a liquid forward market would be nice to have in the wool industry; we just have to work out how to make one work. Where this problem sits amongst the myriad of issues most markets not just wool have to address is the vexing question.

Both buyers and sellers populating the forwards market with prices is a good starting point but easier said than done. As suggested by Churchill navigating the uncertain, conflicting and every changing information requires true genius.

Hopefully the uncertainty will dissipate over time and the pipeline can be re-motivated by demand. Supply will continue to be an issue as we move through the balance of the season. With only a little over 30,000 bales on offer next week and the USD looking a little bit stronger, a steady if not dearer spot should help bring some bidding back to the forwards.

Trades this week.

21.0     November       1455    14t

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