Manawatu Daily Times Wool Economics

Manawatu Times, Volume XLIX, Issue 3288, 6 March 1926, Page 8

Manawatu Daily Times Wool Economics

The slow, but steady improvement which is taking place in the world’s wool markets is making itself noticeable with every successive sale. It will, no doubt, be regretted by many early sellers that it did not set in before, but it should be regarded as a ease of being thankful for small mercies. Readers of these columns may still remember the advice given by the “Times” early in the season to New Zealand wool growers; not to tush the early sales and not to sacrifice this wool. The reasons for such advice were obvious. The previous year had been a very bad one for the wool textile trade and losses, sustained by Bradford alone, must have run into many millions sterling. In fact, it speaks wonders for the soundness and stability of the trade in general that it emerged from this crisis in so strong a condition and recovered in so short a period.

This fact will be appreciated all the more by those conversant with the inner workings of the woollen industry. In the advanced specialisation, which modern industries have developed, there are two inevitable risks in production that must be carried by some section of the industry. These are the risks of unforeseen changes in the demand for the finished product and in the supply of raw material. The risks may be carried by the producer of the raw material, the manufacturer, or the merchant. In the cotton industry, for instance, where the degree of specialisation is very great, these risks are almost invariably taken by the merchant or middleman. Manufacturers and spinners are mostly working to orders and contract for raw material at the same time when taking orders for their manufactured goods. In this way the risk of price fluctuations, either in the raw material or finished article, is taken by the dealers in raw cotton on the one hand and the piece merchants on the other.

Not so, however, in the woollen industry, where specialisation is not so highly developed. Here it is usual for the manufacturer to take the risk. He has to supply his goods all the year round, yet he must buy his stock in large quantities at a limited number of wool sales during a few months of the year His profits are not only obtained from his manufacture, but also from his ability to forecast price-movements in the raw material, of which he generally carries large stocks. In the woollen and worsted industry, only the dyers and combers and those spinners and manufacturers working perhaps on a commission basis, keep clear of the speculative element, while spinners and manufacturers with sufficient capital—as well as top-makers of course—are generally prepared to take the risk of fluctuations in the raw materia,! a-s well as the finished article. These are the men who were severely hit during the 1924-25 season. They completely misjudged, not the supply of the raw material, but the demand for the finished products, and paid exorbitant prices for the raw staple. We pointed out in January, 1925, that the ridiculously high prices were based on an abnormal and fictitious demand, a demand created and stimulated by the equally ridiculous low values of raw material during the previous year.

When good cross-bred wool was selling at 4d per lb, wool not only took the place of cotton, but stimulated the demand for woollen goods to such an extent,, that at the then rate of consumption the world was faced with a tremendous wool shortage. It was on such a fictitious demand that Sir Arthur Goldfinch based his Calculations and helped to lead Bradford into the disaster of 1925. Those who have watched the enormous fluctuations in the values of our primary products of late years must have noticed that every extreme price movement is followed by an equally severe reaction. This inevitable fact is one of the great weaknesses of our present economic system, but its effects may be greatly minimised as far as the producer is concerned. Losses made by the merchant and manufacturer during such crises and depressions as were experienced last year do not only weaken his financial resources, but lead him to greater caution and a natural desire to retrieve his position. These influences cause the pendulum to swing to the other extreme, and it is this the producers should endeavour to avoid It is safe to say that we are now heading for a steady market of normal values in the wool industry. It may be a matter of regret that the improvement did not come earlier in the season, but time for recuperation was essential. The prospects for the future are decidedly bright, and the sheepman may look with renewed confidence for a steadv price for the main product of his industry.