FINANCE

Observer, Volume XLI, Issue 8, 23 October 1920, Page 21

FINANCE

SHAREBROKERS if questioned about the state of the market, would immediately reply that business was "not so bad," which is a round about way of saymg that it is not good—not as good as it was earlier in the year.

The fact of the matter is that the downward tendency of values, with the rise in the rates for loanable credit which began in Europe and the United States about May last is just beginning to affect New Zealand. Money is becoming dearer, and is likely to become much dearer than it is. An inspired article m one of the Wellington papers indicated that the Associated banks were about to raise their rate for overdrafts, and that may be effective by the time these lines appear in print.

It was abundantly clear from the banking returns for the September quarter that the banking institutions of the Dominion would have to impose some restrictions in order to check the inordinate demands for overdrafts. In the past quarter the advances and discounts were over £8,000,000 more than in the corresponding quarter of last year, and the Export Season had scarcely begun. Vast sums will be required to shift the country's produce during the next five or -six months, and there are vast changes this year as compared with the past produce season.

Wool and meat are on a full market, and a market that is far from favourable. The wool position is distinctly adverse, indeed that may be said of all. textiles. There is an enormous surplus of wool, and particully of crossbred wool, Avhich is the staple product of New Zealand. There is comparatively a small demand for wool, because the purchasing power of the aa-001 consuming population of Europe has been enormously reduced, and these countries will require long credit if they are to absorb any big proportion of the wool noAV available. Such credits can be arranged only through the Governments of the producing countries as is being done by Argentina.

Mr. Massey and the High Commissioner recommend avool growers in New Zealand to hold their crossbred clips, and the advice is good. Coarse wool is just now out of favour, and consequently the price is low. Its very cheapness will prove an attraction to manufacturers, as was the case some years ago. At that time coarse wool was exceedingly cheap, and many New Zealand growers who had obtained advances of 6d. per lb. against shipments were called upon to provide reclamations, the aggregate involving a large amount of money. The woollen trade of Bradford soon devised means ot using coarse wool, for some very attractive fabrics were placed on the market at a low price, and received the approval of fashion. I hen followed an excellent consumptive demand and prices for coarse wool steadily improved. History will repeat itself at the present juncture.

What'is going to be the economic effect on New Zealand of the wool position? The season's clip which will soon be available cannot be marketed except at great loss. On June 30 there was available 85b,d7/ bales of'NeAV Zealand avool, equivalent to the average of a season and a half approximately. Only a very small proportion of that stock has been

marketed during the past three and a half months, and those figures disclose the reason for holding the present season's clip. Taking the new clip as equivalent to 500,000 bales, and the approximate value at £12 per bale, our wool growers will have to stand out of about £6,000,000 of money.

They will have the wool, and some of them may be able to obtain advances from the banks, but in any case their income will be less, and there will probably follow a shrinkage in the value of sheep. The State must suffer from this, because less revenue will be received, and Mr. Massey's wild dream of reducing taxation will vanish.

If the banks are to help the wool growers to hold their clips, and it is difficult to see how they can escape this duty, then they must discourage borrowing on the part of others, and this can be done only by making the overdraft rates discouragingly high. The position is such that it seems inevitable but that local bodies must keep off the market. At all events it is hopeless for them to expect to obtain money at 5£ per cent, in the present state of the money market, and the Government is not likely to allow them to offer a higher rate in view of the position. The Government, itself is in urgent need of money, and must in its own interests not hamper the market. The prediction made during the war that the one thing that would be dear would be money is being verified.

The wool position may lead to some very great changes, for it is probable that sheep will disappear from the smaller farms and be replaced by dairy cattle. Butter and cheese are attractive propositions now, and rrovide an irresistible temptation for those who can go in for dairying. It is a safe investment for lue current season, but it may not be juite so promising in the season 3921.-22. Of course it is useless warning the d.T«ry people that the present pi ices are quite artificial, and cannot be maintained for more than a season, because those who are in the forefront of the industry are so aggressively optimistic that they are ready to believe that butter and cheese will never again go back to the pre-war level. Those Avho are not so hidebound will endeavour to get acquainted with the developments that are taking place in Rhodesia, South Africa, Brazil, and the other LatinAmerican Republics, and base their opinions of the future on the evidence they may obtain. Margarine is a great competitor of butter, and cannot be ignored in the considerations of the subject.

There is a slump in sugar, and the world's greatest producer of sugar is feeling the pinch. Cuba has done remarkably well out of sugar, but instead of'excrcising caution, the refiners and speculators in Cuba have assumed that prices were going to remain high for all time. They had what the Germans would call the "will for high prices," and like the Germans they are being beaten. Cuba and the other sugar producing countries outside of Europe profited by the fact that Europe was unable to .supply home demands, and was forced to import. Cuba, Demercia, Jamaica, Java, Mauritius, India, China, Natal and every other sugar producing country, big and small, did well during the past five or six years and hoav there comes a change.

The change is due to the fact that Europe is again producing beet sugar and by next year will probably be in a position to supply domestic requirements, and have a small surplus for export. This year Bohemia has produced 800,000 tons of beet sugar, and it is probable that Germany has been able to supply her own requirements. The present position of sugar makes it clear that the Government of New Zealand has made a bad bargain in buying the Fiji crop. Government interference has meant

doubling tho price of sugar, and forcing the people to pay this double price for unrefined sugar. Government interference in matters of trade and commerce generally end in failure, for the simple reason that politics and business will not emulsify. The business community may now see an opportunity of importing sugar at the reduced prices. Retailers handling imported sugar are not likely to be boycotted while the Government has control of the Fiji crop, the only question is whether the Government will prohibit the importation of sugar as Canada appears to have done.