A Perfect Mania #2: External Price Signals - Wool
A PERFECT MANIA
External Price Signals - Wool
1. THE WORLD ECONOMY
1.1 The expansion in sheep numbers in the seven years after Governor Bourke's Squatting Act of 1836 (by 1843 there were 3,022,000 sheep running in the 'Waste Lands' outside the Nineteen Counties of the Colony of New South Wales) occurred despite strong price signals to the contrary from the Yorkshire woollen mills.
1.2 The Panic of 1837
"In 1836, directors of the Bank of England noticed that the Bank's money reserves had declined precipitously in recent years...To compensate, the directors indicated they would gradually raise interest rates from 3 to 5 per cent...Raising interest rates, according to the law of supply and demand was supposed to attract specie [gold and silver] since money generally flows where it will generate the greatest return...The result was that as the Bank of England raised interest rates, major banks in the United States were forced to do the same. When New York banks raised interest rates and scaled back on lending the effects were damaging...Importantly, demand for cotton plummeted. The price of cotton fell by 25% in February and March 1837 [from 17.5 cents to 13.5 cents a pound]."
1.3 The Wool Crisis 1837-1842
Atkinson & Aveling (eds.), 1987, Australians 1838, Fairfax Syme & Weldon, Sydney
"In 1837 a severe crisis had convulsed the trade between Great Britain and the United States ['the Atlantic core of the world economy'], bankrupting major financiers in both countries and depressing demand for manufactured goods. Thus, after a peak average price of 2 shillings a pound in 1836, wool values had fallen to 1s. 6d. in 1837. In 1838 they dropped by another penny."
2. WOOL SHIPMENTS FROM PORT PHILLIP
Marten A Syme, 1984, Shipping Arrivals and Departures, Victorian Ports, Volume 1, 1798-1845, Roebuck Society No. 32, Melbourne
The first ship that loaded with PPD (Port Phillip District) wool to sail direct to London was the THOMAS LAWRIE, which left the Bay on 26 January 1839 (quantity not specified). Later that year, LADY OF THE LAKE sailed 26 March with 400 bales of wool and LOUISA CAMPBELL on 30 May with 740 bales.
Prior to these shipments, the squatters forwarded lots of from 2 to 62 bales on local schooners and brigs to the older colonial ports of Launceston and Hobart Town (VDL) and Sydney (NSW), where they were combined with other consignments to form complete ship loads for their final sea passage to British markets.
This practice continued in to 1840, although in March of that year 4 vessels, the MAGNET (917 bales), HINDOSTAN, JAMES, and ALICE BROOKS (to Liverpool), loaded and sailed direct from Port Phillip.
In March and April 1841, 6 barques, the ROOKERY (1,054 bales), INDEMNITY (1,072 bales), EAGLE (980 bales), MAJESTIC (692 bales), SOCRATES (444 bales) and PLATINA (1,303 bales), loaded a total of 5,545 bales of PPD wool and sailed direct to the London Docks at Wapping. In August the brig ADELAIDE followed with a further 479 bales.
From January to May 1842, 6 brigs, the ALEXANDRINA (467 bales), DEVA (910 bales), SARAH BELL 506 bales, to Liverpool), WILLIAM WISE (252 bales), HARRIET (564 bales), and TINTERN (252 bales), and 8 barques, the ENMORE(1,150 bales), BRANKENMOOR (1,174 bales), JAMES (1,151 bales), LORINA (518 bales), ASIA (1,325 bales), MARY NIXON (784 bales), NERIO (928 bales), and LADY FITZHERBERT (1,253 bales), loaded 11,240 bales of PPD wool and sailed direct from the Bay.
There were no direct sailings from the other young port in the Port Phillip District. Portland Bay continued to send wool from the Wannon-Glenelg region to Launceston for transfer to London-bound ships. James Henty, shipping agent and financier of Launceston, maintained strong commercial links with his brothers Stephen Henty, shipping agent and merchant of Portland, and Edward, Francis, and John Henty, squatters in Australia felix.
By 1843 a pattern of direct shipments from Melbourne and Geelong to London and Liverpool had become established. The squatters' annual wool clip was significant enough by then to warrant the regular departures of vessels dedicated to the Port Phillip trade. A number of vessels began to specialise in the business of supplying freight services to the growing colonial outpost, with the same 'names' returning late each calendar year to wait on the new season's bales. Another emerging pattern was for wool-laden ships to leave early in the new year when possible, in order to catch the first auction sales (when stocks were low and the Yorkshire mills were prepared to pay higher prices).
2.3.1 In 1843, 4 brigs, the MARY MITCHIESON (985 bales), JAMES (310 bales), REBECCA (292 bales), and MARY LYONS (85 bales), and 10 barques, the DUKE OF RICHMOND (1,415 bales), SYDNEY (833 bales), ADEN (1,110 bales), THOMAS HUGHES (923 bales, to Liverpool), ARAB (739 bales), ELLEN (971 bales), GLENBERVIE (541 bales), ALICIA (684 bales), ENMORE (306 bales), and TUSCAN (542 bales), carried away 9,736 bales of PPD wool. The ALICIA managed to get away on 26 December 1842, and another 5 of these vessels sailed in January and February 1843.
2.3.2 In 1844, 3 brigs, the REWARD (943 bales), MARY MITCHIESON (772 bales), and JEAN (590 bales), 15 barques, the DUBLIN (101 bales), JAMES (625 bales), LORD KEANE (650 bales), MARY LLOYD (793 bales, to Liverpool), LONDON (1,044 bales), ADEN (315 bales), CECILIA (383 bales), SEA QUEEN (116 bales, to Liverpool), ARAB (232 bales), RAJAH (1,287 bales), MORAYSHIRE (1,058 bales), WINCHESTER (1,275 bales)CAMOENA (724 bales), TYNE (487 bales), and PLATINA (510 bales), and 2 ships, the IMAUM OF MUSCAT (1,183 bales, to Liverpool), and GILMORE (289 bales), left Port Phillip Bay with 13,377 bales of PPD wool. Two of these vessels left late in 1843, and 9 left in January and February 1844.
2.3.3 In 1845, 4 brigs, the WILLIAM WISE (995 bales), WILLIAM STOVELD (315 bales), ATHENS (909 bales), and REWARD (1,086 bales), 9 barques, the ELLEN (1,432 bales), ABBERTON (1,572 bales), THOMAS HUGHES (1,371 bales), MARY WHITE (1,252 bales, to Liverpool), VIXEN (1,067 bales), RAJAH (1,777 bales), BRANKENMOOR (1,513 bales), CYGNET (746 bales), and TROPIC (1,784 bales), and 1 ship, the ROYAL GEORGE (2,186 bales), loaded 18,005 bales of PPD wool for direct passage to Britain. 6 of these vessels sailed in January and February 1845, and 5 of them left in March and April.
2.4 Summary and Interpretive Notes
2.4.1 From a zero start in 1838, 3 vessels loaded wool direct for England in 1839, and 4 vessels in 1840, but the number of bales carried away by them are not recorded. In 1841 6 vessels loaded 5,545 bales, in 1842 14 vessels loaded 11,240 bales, in 1843 14 vessels loaded 9,736 bales, in 1844 20 vessels loaded 13,377 bales, and in 1845 14 vessels carried away 18,005 bales. In terms of production at least, wool producers do not appear to have been deterred by the contrary price signals from Britain.
2.4.2 A bale of wool was meant to weigh 240 pounds, giving a gross guide to carriers of 10 bales to the ton. At port they were screw-pressed to reduce their size by half before loading on board ship. A rough guide to vessel size is:
Schooner: two-masted, fore-&-aft rigged, 50-200 tons
Brig: two-masted, square rigged, 150-300 tons
Barque: three-masted, 2 square rigged and 1 fore-&-aft, 250-500 tons
Ship: Three-masted, square rigged, 350-650 tons
(square rigged vessels had more sail area but required more crew).
3. DELAYED PRICE SIGNALS
Atkinson & Aveling (eds.), 1987, Australians 1838, Fairfax Syme & Weldon, Sydney
3.1 The journey of wool - a hypothetical
September: On the sheep's back. Agents make advance to grower.
October: Shearing at the station woolshed
November: Bullock dray to port warehouse
December: Screw-pressed and loaded on ship
January: Loaded ship leaves Port Phillip
February: At sea
March: At sea
April: At sea
May: Ship unloaded at London Docks
June: Bales sampled and sorted on warehouse floor
July: Wool sold by auction at London coffee house
August: Bales allocated to purchasers and loaded by carriers
September: Wool travels by horse cart and canal boat to Yorkshire mills
October: Processing of wool fibres begins
November: Remittance of net proceeds and condition report reaches Australia
December: Wool grower repays advance to agents
3.1 Long investment lead/lag times
From the date of physically harvesting the wool (shearing) to the date of receiving the net proceeds (price signal), at least 15 months elapsed before the squatters could plan any adjustments to output. (The grower was actually shearing the next year's clip before he knew the fate of the last season's).
In practice, it was longer again before any management decisions based on the latest market intelligence could have any real effect on the productive chain.
December/January: Rams go out to the ewes
May/June: Ewes lamb down
September/October (year 1): Lambs weaned and shorn
September/October (year 2): Weaner/hoggets shorn for first adult fleece
This is a biologically determined cycle that potentially adds another 18 months to the lag time from an investment decision to its result in increased production. It may therefore be 2 to 3 years before a price change achieves its full effect on production levels.
However, while the concept of lead-times is an interesting observation in the present case, its relevance is questionable. It does not explain the actual behaviour of the Port Phillip squatters. The continued upward trajectory of reported wool shipments (i.e. for more than 3 years after the price fall in 1837) belies the idea that delayed price signals from the London and Liverpool auction sales skewed their response.
4. WOOL SALES INFORMATION
The Sydney Herald, Thursday 17 November 1836, p. 3
The Sydney Monitor, Wednesday 8 February 1837, p. 2
The Sydney Gazette and New South Wales Advertiser, Thursday 11 July 1837, p. 2
Launceston Advertiser, Thursday 26 July 1838, p. 3
4.1 Bouyant conditions in 1836 ...
"Liverpool, 25 June, 1836. 'Public Sale, Australian Wool', ex Norfolk, 1,063 bales': The attendance of buyers and staplers was unprecedently numerous, the bidding most spirited, and the whole sold from 2s. 0.5d. to 3s. 6.5d. per lb., making an average of 2s. 2.75d. per lb...The result of this sale has even far exceeded our most sanguine expectation; and in comparison with our first cargo last year, per Princess Victoria, the advance realised is fully 4d. per lb., and in some instances even more...Messrs. Aspinall, Browne & Aspinall, Liverpool."
4.2 ... but early warnings too
"London, 17 September, 1836. 'Wool Sale, Lime Street Square, London': ...Since that period a very large quantity has been brought to the hammer...the quality and condition (with some exceptions) much inferior, [and has] had the effect of lowering prices, a depression augmented by the unexpected change which has recently occurred in the Money Market...John Masson ['Abstract of the September Wool Sales']."
4.3 Price crash in 1837 ...
"The Public Sales of Colonial Wool at Liverpool took place on the 6th and 7th [July 1837]. About 2,000 bales were brought forward and the entire quantity sold. The attendance of buyers was numerous, and, under all the circumstances, we think the prices realised were equal to the expectations of the Importers...
Low Clothing and Coarse Combing, from 10.5d. to 1s.4d. per lb;
Good and Fine Clothing and Combing, 1s. 5d. to 1s. 6d.;
Very Good and Fine Clothing and Combing, 1s. 7d. to 1s. 10.5d.;
Ten bales of Extra Fine Clothing, marked 'ICELY', brought 2s. to 2s. 3d.
The whole averaging 1s. 6d. per lb.
The above sales, coupled with the London ones of last month, establish a decline of full 1s. per lb. in comparison to last year's June prices. The inferior Clothing sold higher, in proportion to the Fine Combing and Clothing, the Combing suffering most. The Wools generally are in excellent condition, and it gives us much pleasure to notice this improvement...Marsh & Edinborough [agents, London & Liverpool, July 11, 1837]."
4.4 ... and the outlook continues flat
"March Wool Sales, London, 1838'. ['Sime's & Co's Catalogue of Wool Sales at Garraway's Coffee House on the 22nd March...Ex Africaine from Launceston...45 bales...Ex Dawsons from Hobart Town...76 bales...Ex Derwent from Hobart Town...58 bales...']. Dear Sirs, I beg to enclose you the particulars of the late Public Sales of Colonial Wool, which have gone off at a reduction upon the sales of January last, of about two pence to three pence per lb; the trade continues languid. Considerable orders had been anticipated from
from America, but which are now not likely to come forward: indeed I do not expect any improvement in price this present season."