Cotton Break

One dull morning last fortnight brokers on the New York Cotton Exchange were getting ready to take off their linen office coats and go out to lunch. Suddenly for no apparent reason one trader sprang forward to the ring, announced he would sell cotton for 11.80-c- per lb. -- 20 points below the price at which that staple has been virtually pegged by the Government for seven months. A violent wave of selling broke over the market, uncovering nests of stop orders. The price fell 10 to 20 points on each transaction. May contracts sank to 10.25-c-. Brokers snouted themselves hoarse as orders to sell poured in from the South, from Europe, from the Orient. Near-panic spread to the New Orleans Cotton Market, to the Stock Exchange, to the grain market in Chicago. When the Cotton Exchange's big bronze bell closed trading at 3 o'clock, cotton had suffered its worst break since 1927, with a maximum drop of 1.85-c- per lb. ($9.25 per bale). Next day it opened around 11-c-.

All last week Worth and Wall Streets echoed with talk about the "news" that had caused the break: a report from an unknown source that the Government had decided to abandon its policy of lending farmers 12-c- per lb. on their cotton. As a price stabilizer that policy had been effective. But who could tell how far cotton might fall if the loans were stopped?

Promptly the Press blossomed with denials from AAAdministrator Davis that any change in the loan policy was contemplated. Senator Bankhead, author of the Cotton Reduction Program, soothingly reassured the public that loans would continue into the new crop year beginning Aug. 1. A group of Cabinet officers and Senators hurried into conference with President Roosevelt, emerged to announce that the President was entirely in sympathy with the cotton control program. Bellowed Senator Ellison D. Smith of South Carolina: "I think the same sinister forces that wrecked Hoover's farm program are at work to destroy our present cotton policy." Next day he introduced a resolution which was passed by the Senate asking for an appropriation to "get to the bottom of this break."

Secretary Wallace was cooler but equally emphatic: "We are not going to allow the purchasing power of Southern planters to be wrecked; it means too much to the prosperity of the rest of the country." Then he announced as his latest slogan for farm control: "Plenty without waste." "I wish to announce my complete abhorrence of this tendency to provide an economy of scarcity," said the New Deal's stanchest advocate of crop reduction. "Agriculture did not start it and does not plan to continue it. We have been for a balanced production."

Dangerous Defiance? Many an enthusiastic Southerner believes that, with cotton prices double what they were two years ago, the South has not been better off since 1861. Yet in & out of the South are thoughtful citizens who believe that the cotton program is the New Deal's most dangerous example of man's economic defiance of Nature. They contend that: 1) the artificially pegged cotton price plus the processing tax has thrown cotton out of line with other textiles; 2) by boosting U. S. cotton above the world price and by cutting the cotton production of the South, the U. S. is losing its foreign market, which has heretofore absorbed half of all U. S. cotton. Fact is, the South used to produce 60% of the world's cotton; today it supplies less than 50%. Exports during the present crop year have been 2,354,000 bales below last year. Yet Peru's 1933-34 crop of 325,000 bales is better than the year before. Brazil's 1,500,000-bale crop is the largest in history, and the Brazilian Government is doing all it can to stimulate further production. Last week the directors of the Liverpool Cotton Exchange announced that they were preparing futures contracts for the first time in Brazilian, Peruvian and Argentine cotton to compete with the U. S. "The truth of the matter is," said one U. S. cotton expert lately, "that our Government is holding a huge umbrella over the rest of the cotton producing world. . . ."

Cotton Into Bag. Critics of the cotton policy were afraid last week that if cotton continues under 12-c-, Southern farmers will take advantage of the 12-c- loan plan to stuff more & more cotton into the U. S. Government bag--cotton which may not be liquidated at home without seriously upsetting the market and which cannot be liquidated abroad in quantity except at a loss. Secretary Wallace has often answered such dark fears by repeating the object of the cotton plan: to reduce cotton carryovers which were 13,000,000 bales in 1932, 10,000,000 bales last August. But, his critics retort, the price to be paid for this obvious advantage may be the loss by the U. S. of most of its foreign market.

Last week with the cotton markets still unsteady, with public and private holders of cotton contracts facing paper losses of $135,000,000, the arch-Republican New York Herald Tribune reprinted Calvin Coolidge's remarks on commodity stabilization written in 1930:

"It is impossible to repeal the law of supply and demand, of cause and effect, of action and reaction. . . . When the consumer buys a product it goes out of the market and disappears. When private or public agents buy to fix an arbitrary price the product is still in the market. Every consumer knows it and waits for the resale. The price can be held only as a local or temporary expedient which usually makes matters worse. . . . Not even the U. S. Treasury is powerful enough to put an arbitrary price on the great world staples with any permanent success."

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