wool being inspected

With a turbulent year now behind us, wool growers who have wool to sell in the early months of 2021 will be mulling over the uncertainty of global conditions through the Christmas break and up to their wool sale date. This is the circumstance where consideration could be given to taking out some hedge cover, removing some or all of the market risk. With recent Riemann trades offering price levels in line with the close of the 2020 auction sales, there is opportunity for growers intending to sell in the early part of 2021 to take some cover.

Riemann wool futures offers the only transparent forward market for wool, and for December has been trading reasonable volumes at prices in line with the current auction values offering wool producers the opportunity to improve some of their prices.

When considering a forward trade, growers need to consider their particular situation in terms of risk, however with the volatile auction year as recent experience, there will be producers who will be keen to take some cover.

When deciding to hedge price risk, key considerations are your future selling date (when do you intend to shear and send the clip to market), the price level you are looking for (use recent traded prices as a reference for hedge levels), and if intending to forward sell, how much should you lock-in.

These decisions all need individual consideration, there is no “one size fits all” template, so seeking advice from the wool broker or advisor is prudent.

A sensible approach is to take on board all necessary information, including current bids and recent trades (see table 1) relevant to your MPG and selling date, and place an “offer to sell” on the screen. While this will not guarantee you will get the price you are asking, it will provide any buyers looking to purchase, with a firm offer they can either buy or bid against.

What does it mean?

Placing orders that are “good till cancelled” is a good strategy for wool producers to offer a portion of up-coming wool production to the market. The “cash settled” nature of the Riemann Wool Forward contract simplifies the process with the wool broker performing the important role of settling the contract and ensuring performance.

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Data sources: Reimann, Mecardo

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