Views On Fluctuations

Press, Volume CVII, Issue 31530, 18 November 1967, Page 8

Views On Fluctuations

Summarising the views of individual wool buying firms, the wool marketing study group says that they can see little hope of the containment of price fluctuations within the present marketing system.

“It was suggested that the system could be improved by more frequent sales and better published information.” The auction system was unanimously supported, the group said. All buyers, with the sole exception of commission buyers, had to take a forward view. They had said that forward selling over the last 30 years had been moving down the distributive chain and now dominated the auction system. “The point was made that while large forward sales might initially cause some depression of prices, when these sales came to be covered a corresponding stimulus was imparted, so that the net effect of forward selling was largely to redistribute price peaks and troughs.” A result of forward buying and the associated decline in commission buying had been the paring down of trading margins of buyers in New Zealand. There was general agreement that there was a growing degree of concentration into fewer overseas users.

It was considered that minor fluctuations must al-

ways be a feature of the market, but extremely high prices were regarded as harmful at all levels. Doubts were expressed about the economic advantages of a buffer stock scheme, but it was thought that if a ceiling price could be devised it would be in the best interests of the trade. Buyers did, however, point out that the growth of synthetic substitutes must tend to set competitive ceiling prices for wool.

The buyers also expressed views on stabilising auction prices by alternative or improved methods of presenting wool for sale. They were agreed that lines presented should be consistent. The main complaint was that even when quality number was consistent, length was much too variable. They indicated that there was a lack of standardisation even at an unsophisticated level and that the quality of work put into all types of preparation—binning, inter-lotting and so on—varied greatly from centre to centre and from broker to broker. Reclassing on the other hand was conceded to be well done, but in many cases growers' branded wool was preferable, and it was the group’s opinion that it would be in the interest of growers for agreement to be reached by buyers and brokers on this question. The concensus of opinion on the availability of various wools over the season was that buyers were geared to meet the seasonal nature of the types coming forward.

The executive of the Federation of New Zealand Wool Merchants considered that the origin of fluctuations was related, in the broadest terms, to world economic conditions. The merchants had no definite plan to offer as to how fluctuations could be contained at the higher level, although it was thought that the Wool Commission’s operation on a flexible price policy rather than a fixed floor, might be able to exert some influence —mainly in dealing with downward price movements. In such a scheme the commission would have power to nominate a new price level at the beginning of each auction sale.

“Fluctuations could best be contained by ensuring a realistic floor price was fixed on an international basis having regard to the general economic conditions in the consuming markets and the prices of competitive fibres,” states the report in giving the views of the New Zealand Woolbrokers’ Association. ■Hie brokers considered ceiling prices to be impracticable and price fluctuations an inherent part of the wool trade, as with all basic commodities. Minor fluctuations were “part and parcel” of the auction system, but major fluctuations were dependent on end-user demand for finished goods rather than on the supply of raw wool. An analysis of the effect of an uneven flow of types into the market and of the effect of lot size indicated that these factors were not a major cause of price fluctuations, the group said.