Price Relationships on the Sydney Wool Futures Market

Abstract

The only commodity futures market in Australia, that of the Sydney Greasy Wool Futures Exchange, was born in May 1960 and rapidly grew to be one of the largest wool futures markets in the world.2 Other, older, wool futures markets exist in London (tops), New York (greasy and tops), Nagoya (yarn), Antwerp (tops) and Roubaix (tops). The Sydney market came into being partly because of restrictions on capital movements out of Australia and partly because a futures market located, and providing for delivery, closer to the major greasy-wool marketing centres was thought to be desirable by Australian wool buyers, merchants and brokers: of the other major wool futures contracts, the New York greasy contract provides for delivery at Boston while delivery on the London contract is at Bradford.3 The Sydney contract is for the greasy-wool equivalent of 3,000 lbs. clean weight of wool-approximately 15 bales. Delivery can be effected at any of the 14 wool selling centres in Australia, ranging from Brisbane to Freemantle. The standard type of deliverable wool is 64s quality Good Topmaking Merino Fleece Wool of Good to Average LengthCentral Wool Committee type 78. However, this is not the only type of deliverable wool: 73 types of (Australian) wool are listed as deliverable, at premiums and discounts determined monthly by the Exchange. In order to protect the traditional auction system, all wool tendered must first have been sold at one of the recognized Australian wool selling centres. Contracts for delivery in January, March, May, July, September, October and December are traded, with trading up to 18 months before the contract delivery month. Tenders may be made up to the 30th day of the delivery month so long as notice of intention to tender has been given by the 23rd. In common with most futures markets, few Sydney contracts are completed by delivery of actual wool-generally fewer than 2 per cent. of contracts are terminated by delivery. The