Wool futures, and price risk: what history tells us

That raises a simple but important question: should price risk still be taken entirely at the farm gate, or can it be managed more deliberately?

One tool that keeps resurfacing in that discussion is wool futures – a tool that remains widely misunderstood across the industry.

Why wool is different

Compared with grain and cotton, where global price visibility and hedging are part of everyday business management, only a small number of woolgrowers actively use formal price risk tools. That hasn’t happened by accident.

According to Garry Booth from Southern Aurora Markets, history has played a major role.

“From the launch of the Sydney Greasy Wool Futures Exchange in 1960, through till the early 1980s there were solid volumes in wool futures, with Growers, Exporters and Processors active in off-loading risk and locking in their forward prices, it was at that time that the Sydney Greasy Wool Futures Exchange was a globally recognised and quoted market,” Garry said.

“However, it’s decline closely followed the expansion of the floor price scheme – a system introduced in 1970 that delivered price certainty without growers needing market-based risk tools.

“The irony is that when the floor price was removed and wool prices collapsed, the industry no longer had a functioning futures market to help manage the shock, and that legacy still shapes many attitudes today.”

Why price risk matters more now 

Today’s wool industry mostly operates without price guarantees and in full exposure to global markets. Wool competes directly with synthetics and other natural fibres, is sensitive to consumer confidence, and is influenced by factors far beyond Australia’s control.

Large price moves are no longer rare events. They are becoming a structural feature of global commodity markets. For businesses operating on tight margins, a 10–20 per cent fall in wool prices can wipe out profitability for an entire season.

“In most global supply chains, managing price risk isn’t optional,” Garry said.

“It’s considered core to long-term business investment and survival.”

What wool futures actually do 

Wool futures are not about picking the top of the market or even to predict prices.

Their role is to manage risk.

A futures contract allows a grower to lock in a price for a forward future period, usually aligned with their shearing or selling windows. Contracts are financially settled against an Auction Price, meaning there is no requirement to deliver physical wool. If prices fall, gains on the futures position help offset lower auction returns. If prices rise, losses on the futures position are balanced by stronger prices for the physical clip, therefore an agreed price on a screen say 3, 6, 9 or 12 months forward can be locked in, or in fact any date between that aligns with an auction date.

The trade-off is deliberate: less exposure to extreme outcomes in exchange for more stable returns.

Protecting margins, not chasing headlines

One key message from Garry is the importance of focusing on margins rather than headline prices.

Many costs – feed, labour, freight, insurance, finance, and compliance – are fixed or slow to change. Wool prices, however, can move quickly.

Futures and other risk tools are designed to help protect the gap between those two forces.

Over time, businesses that proactively try to protect margins tend to be more resilient, even if they don’t always achieve the peak prices in strong markets.

Why banks are paying attention 

Another shift is happening quietly in the background: lenders are paying more attention to price risk.

Banks are increasingly asking: 

• How exposed is your business to sudden price falls? 
• Is any production price-protected? 
• Is there a documented approach to risk management? 

Demonstrating some level of price risk management can improve conversations with lenders, reduce pressure in downturns and support longer-term planning – particularly in capital-intensive, seasonal businesses like wool.

A practical example 

Consider a Merino grower expecting to shear around 270 bales in April–May.

With rising costs and uncertain markets, the grower wants more income certainty.

After discussions with a broker, they may decide in stages to hedge somewhere between 25 and 50 per cent of their expected production using wool futures aligned with their shearing window. If prices fall, the futures position helps cushion the impact. If prices rise, the grower still benefits on the unhedged portion of the clip.

The goal isn’t to try to pick the top or maximise price – it’s to reduce risk, improve cashflow confidence and make planning easier.

A cultural shift, not a silver bullet

Wool futures won’t suit every grower or every business as it doesn’t remove all risk, however Garry and the team believe risk management is an ongoing strategy and not something only considered in bad years.

“Volatility is now a permanent feature of global markets,” he said.

“And managing price risk is now part of how businesses have evolved to operate.” 

Understanding matters –even if you never use them 

Even growers who never trade futures can benefit from understanding how they work. Futures markets provide insight into market expectations, sentiment and forward pricing signals.

Leading Australian wool industry figures helped establish the Greasy Wool Futures Exchange, which became a global leader in price risk management.

As markets continue to evolve, revisiting that mindset – using modern tools and safeguards – may help growers navigate an increasingly uncertain future.

MORE INFORMATION
Contact the Southern Aurora Markets Wool Team of Andrew, Garry & Mike for more information. 

samarkets.com.au 
garry.booth@samarkets.com.au 
0429 012 351

This article appeared in Issue 105 of AWI’s Beyond the Bale magazine that was published in March 2026. Reproduction of the article is encouraged and should be attributed as follows: This article was first published in Issue 105 of AWI’s Beyond the Bale magazine.