“It seems to be just steadily growing every year,” Bayley said.
“We haven’t got a target, we are led by our clients. I think it will steadily grow as people use it as a management tool.”
For farmers, the contracts spanning a single shearing to as much as three years’ supply provide more certainty over future returns than spot market prices from auction or private sale, and also enable more certainty for end customers.
PGG Wrightson’s ability to link the two together got a boost after it bought wool exporter Bloch and Behrens in 2007.
“We were led initially by clients wanting to take the price fluctuations out,” Bayly said.
“On the other side through our export arm, Bloch and Behrens, we had customers that wanted to link into supply of guaranteed good-quality wools out of New Zealand.
“For both ends, it’s risk management knowing what your prices are. This is one way where we can help smooth out the volatility.”
Customers using the fixed contracts include Sweden’s Klippan Blankets, Japanese fine suiting maker Konaka, United Kingdom furnishing supplier Abraham Moon, United States sock manufacturer Point6, Danish carpet maker Ege, US activewear brand Global Merino, UK tennis ball maker WSP and Austrian hand-crafted rug manufacturer Tisca.
Farmers can have part or all of their wool clip in a fixed contract and may commit half of their clip, enabling them to still have exposure to spot prices for the remainder.
“It still leaves you open to market levels moving,” Bayly said.
About half of NZ’s clip is estimated to pass through the auction system.
The wool broker expects to ink more contracts for fine and mid-micron wool after appointing South Island-based Craig Smith as business development manager in late 2014.
Fine-wool growers are more used to contracts and there is more price upside for those wools at the moment compared with crossbred wools that are sitting at the top of their historical price range, Bayly said.
The company recently attended the Domotex fair in Hanover, billed as the world’s flagship trade fair for carpets and floor coverings, and the ISPO fair for sporting goods, athletic footwear and fashions in Munich, and Bayly said business was “very strong” at both events.
He said wool is being used for a wider range of more specialised products for interior furnishings, fashion and shoes and moving away from high-volume commercial use in carpets, which is helping bolster prices.
