Wool futures next year?

Press, 28 November 1979, Page 25

Wool futures next year?

PA Wellington Two representatives of the London futures market left New Zealand yesterday confident that a futures’ contract market for New Zealand crossbred wools will be established early in 1980. according to a supplied statement. Mr David Thornton, a member of the committee of management of the London Wool Terminal Market Association, Ltd. (L.W.T.M.A.) and Mr Gilbert Baker, a director of the International Commodities Clearing

House, Ltd, spent 10 days in New Zealand discussing their proposals with the wool trade, farmer representatives, and financial institutions. More than 150 people heard explanations of the working of the futures markets, their potential for reducing the risk of market fluctuations, and the role of the commodity clearing house at seminars in Wellington and Christchurch. Final approval for the establishment of a futures contract is expected at a meeting of the L.W.T.M.A. in

London on December 11. If approval is given futures trading in New Zealand crossbred wools will start in London on January 7. 1 he association was aware that futures trading was a new concept for New Zealand's wool industry, and education about the wool futures market would be required. Mr Thornton said. A futures contract in New Zealand crossbred wools already existed, but it was rarely used by the trade in NSw Zealand because delivery must be made in Europe and prices were quoted in

sterling. The new contract ■ would provide for delivery I to approved storage facilities 1 at New Zealand selling centres, and prices would be ■ quoted in New Zealand dol--1 iars. he said. The proposal was supported by the New Zealand 1 Wool Board, whose appraisal system would be used in establishing the wool types to be handled. “A major aim will be to involve the New Zealand woolgrower in futures trading. This will take some time because of the lack of experience among growers ’ in this txpe of marketing. However, it is crucial to the entire operation.” Mr Thornton said. Selling a futures contract allowed a farmer to guarantee the price that he would receive for his clip at a future date, up to 18 months ahead. It was a firm commitment to deliver or receive a specified quantity of a specific type of wool during the designated month. Price was determined by open outcry on the trading floor of the L.W.T.M.A in London, while the I.C.C.H provided the financial security for the market. Most operators used the futures market for price risk protection, and normally did not allow contracts to reach maturity. Fulfilment by physical delivery on the L.W.T.M.A rarely exceeded 2 per cent of contracts traded. Mr Thornton sa ; d.