Wool Swaps for Producers

Your need

You are a producer (seller) of wool. It is important for you to have certainty for planning and budgetary purposes and you would therefore like to agree a fixed price now for when you sell your wool on a future date.

Solution

A wool swap allows you to receive a fixed commodity reference price for wool.

How it works

After credit approval, you enter into a wool swap with the Bank. The Bank will calculate the fixed price based on certain factors, such as the current commodity reference price, the pricing date/s, the transaction amount and transaction period.

Possible outcomes on the pricing date

• Commodity reference price is lower than the fixed price - the Bank must pay you the difference between the fixed price and the commodity reference price.
• Commodity reference price is higher than the fixed price - you must pay the Bank the difference between the fixed price and the commodity reference price.
• Commodity reference price is equal to the fixed price - you and the Bank will have no further obligations to each other with respect to the wool swap.

Benefits

• You receive commodity price protection through the fixed price.
• Can be customised, so you can determine the transaction amount and pricing date/s.
• Are cash settled so no need to physically deliver wool to the Bank.
• There are no complex exchange traded brokerage and margin calls.

Points to consider

• You cannot benefit if the commodity reference price moves above the fixed price.
• You are not covered for the basis risk, which is the risk arising from entering into a hedge transaction that is not identical with the risk being covered.
• You may have to pay an amount, if the wool swap is terminated prior to its scheduled termination date, depending on its mark-to-market value.

     Like to know more?

• You'll find more detailed examples, including pricing on our secure commodities website. Register Here
• Email us to schedule a contact time to discuss your commodity requirements.
• Call us on 1800 633 957 from 8am to 5pm (Sydney time) Monday to Friday.