Commission Has Become Large Trader In Wool

Press, Volume XCVIII, Issue 29010, 26 September 1959, Page 9

Commission Has Become Large Trader In Wool

[By Our Commercial Editor! In the last two seasons the New Zealand Wool Commission has bought more than 90,000 bales of wool in New Zealand and the United Kingdom and has sold nearly half of these purchases. The Commission has been a major factor in the wool market in these seasons, and the results of its operations deserve the attention of woolgrowers. The woolgrowers are, in effect, the shareholders in this huge trading concern, for the commission’s initial funds were provided by the industry.

Extracts from the annual accounts were published recently. These showed that the commission’s “profit” (excess of income over expenditure) in the year ended June 30, 1959, was £745,442. This amount, which was transferred to the capital fund of the commission, compares with a profit of £771,583 the previous year:

These profits come mainly from interest on the investments which comprise the commission’s capital fund. Interest earnings of nearly £lm per annum enable the commission to pay the salaries of its staff and other expenses, to supplement the income of the New Zealand Wool Board, and to finance its “wool purchase and sale account.”

The purchase and sale account is of special interest to growers in a season, such as 1958-59, when the commission made extensive purchases to maintain the floor price for wool. Last season the commission brought 44,290 bales of wool in New Zealand, 21,274 of them at Christchurch sales, and 9484 of them at Timaru. The previous season the commission bought a total of 46.899 bales—43,B2l bales in New Zealand, and the remainder in the United Kingdom. Apparently, none of this wool was scoured that year, and none of it had been sold by June 30, 1958: stocks (“on hand or afloat”) were 46,899 bales at that date. 1958-59 Operations In the 1958-59 season, however, the commission was active in scouring, shipping and selling wool, as well as buying up more wool whenever auction prices failed to reach the floor price. Purchases in New Zealand last season totalled 44,290 bales and a further 2111 bales were purchased in the United Kingdom. By June 30, 32,972 bales had been shipped to London, '-he commission sold 23,545 bales in New Zealand and 21,371 bales in the United Kingdom. Total sales were therefore 44,916 bales, but if 295 bales (“loss of weight in processing”) are added, total “dis-

posal” amounts to 45,211 bales. Scoured wool and greasy wool are not separated in the details of sales and stocks, but from the loss of 295 bales in processing it appears that sales of scoured wool last season were between 600 and 1000 bales, of a total of 1393 bales scoured. Stocks at the end of the season therefore included a further 400 to 800 bales of scoured wool. Total stocks at the end of the year were 48,089 bales, 31,299 in New Zealand and 16,790 in the United Kingdom. So much for the physical side of the commission’s activities. It remains to translate these activities into £ s d to complete the picture. Opening Stocks Opening stocks (at July 1, 1958) were valued—presumably at cost—at £2,027,103, or an average of £43 4s a bale. Purchases during the season cost £2,443,171 and averaged £52 8s for New Zealand purchases and £5B 12s a bale for United Kingdom purchases. Expenses, mainly freight, insurance and storage charges, totalled £177,673. Sales during the season realised £2,231,841, an average of £49 8s for the total disposal of 45,211 bales. Wool sold in New Zealand averaged £47 16s a bale in New Zealand and £5l 18s in the United Kingdom. (Although these prices are below the 1958-59 purchase prices, they compare with £4l 8s and £52 respectively paid in 1957-58.) Closing stocks (including 400 to 800 bales of scoured wool) are valued at £2,534,014, or £52 12s a bale. The New Zealand stocks are valued at £5O 8s and the United Kingdom stocks at £57 ss. The basis of this valuation is “cost, less an allowance of £65,000 for contingencies,” according to a note to the accounts.

Receipts exceeded expenditure by £50.309, so this amount represents the commission’s profit for the year. Last year, when no sales were made, the account showed neither a profit nor a loss.

It should be emphasised that the financial results of the commission’s operations depend to a large extent on the valuation of the stocks at the opening or the close of the season. In the 1958-59 year, for instance, the commission could have shown a larger profit by writing up the closing stocks. Possible Gain Last year, when wool prices were at their lowest for 10 years, the commission made a small profit. It is now “sitting” on stocks valued (in New Zealand) at less than the average value of £5O 17s a bale realised by all greasy wool sold in New Zealand last season. If the commission quits these stocks at a price between the 1957-58 average of £57 15s a bale and the 1956-57 average of £76 12s a bale it will make a handsome profit. Whatever the outcome of the commission’s operations in the coming season, woolgrowers have every reason to be satisfied with its activities in the last two seasons. Besides the small profit shown in its wool purchase and disposal account, the commission has, through its floor price scheme, benefitted every producer of fine wool. The additional income of woolgrowers directly attributable to the maintenance of a floor price cannot be calculated, but it was certainly many times the book profit of the commission. The scheme has sometimes been criticised by woolgrowers, and has often been praised by economists. It seems to get less attention from farmers’ councils than does the New Zealand Wool Board, a more spectacular but economically less significant organisation. Some aspects of the commission’s activities might well be examined more closely by woolgrowers. Investment Of Funds Perhaps the most pressing of these is the investment of the commission’s funds. At June 30 this year the capital funds of the commission had a nominal value of £ 29.7 m. Invested in gilt-edged securities, these funds earned nearly £lm in interest last year, and, with the £2.2m raised from the sale of wool, financed the purchase of £2.4m worth of wool during the year.

In the event of a sudden, large fall in the price of wool, the commission would have to realise on some of its assets. The present disposal of these assets would make this difficult and costly. The £ 29.7 m capital of the commission is invested mainly in New New Zealand (£25.7m). For greater stability, the major proportion of the commission’s capital should be invested in the United Kingdom in a wide range of stocks.