Forward selling system

Press, Volume CXI, Issue 32588, 23 April 1971, Page 13

Forward selling system

Forward selling of wool was something about which there seemed to be a great deal of misunderstanding among wool growers, Mr K. J. Fulton, a former president of the New Zealand Woolbuyers’ Association and buyer of long standing, said at the wool marketing forum at Ashburton last week. About 80 per cent of the clip, or even more, was sold in this fashion, he told a questioner. “Some of you believe that forward selling was invented by woolbuyers as a means of making speculative profits,” said Mr Fulton. “On the contrary this type of business was thrust on the buying trade by manufacturers who, themselves, were required to offer their products at a fixed price for forward delivery.” As long as they continued to buy their raw wool through a commission buyer they did not know in advance what it would cost from month to month and were obliged to hold

substantial stocks in order to provide a hedge against their forward offers of their own products. This did not disturb the woolbuyer, who was content to earn his commission without taking a market risk. After World War 11, however, some large manufacturers decided, for a number of reasons, that they would no longer accept this market risk and demanded offers at a firm price for future shipment. The buying Anns had then to comply or else lose the business to competitors. “Today the bulk of the clip is sold forward on firm offers at prices based generally on current auction values. The accumulation of all these forward sales to hundreds of customers all over the world provides the steady demand throughout the selling season, on which our auction system depends. “Although it involves woolbuying firms in substantial losses from time to time and not many profits in recent years, we have to live with it or go out of business. Provided it is intelligently operated it is not a bad system, because it ensures a steady demand at all sales and avoids widely fluctuating prices,” said Mr Fulton.

fits made by New Zealand buyers are retained in New Zealand and are taxable. Mr Woodham said that some recent innovations into the auction system, such as micron testing, core testing, selling by sample and blending suitable types of wool had been used in private treaty trading in some cases for as long as 10 years.