Cotton Chaos

In the nation's cotton exchanges last week, it was quiet enough to hear a weevil nibbling a boll. In Manhattan, New Orleans and Chicago, cotton traders stayed home; in Memphis, the cotton exchange's big quotation board was bare, and brokers sat around their Front Street offices playing gin rummy and dominoes. Cotton mills held their goods off the market, refusing to bid even on military contracts until they got at least a faint inkling of the score. In four weeks, the marketing system of the U.S. cotton industry had been slowly paralyzed by the price freeze.

The freeze, the cotton exchanges agreed, was unworkable. It left the price of cotton on the farm uncontrolled, but put ceilings on all cotton after it is shipped to the gin. Since the futures exchanges deal in contracts on ginned cotton, that meant that every trader had to compute his own ceiling (i.e., the highest price paid during the Dec. 19-Jan. 25 period). The exchanges had no way of helping to keep track of those innumerable ceilings, or enforcing them; hence they closed down. With both spot and futures markets closed, the cotton mills could not buy the cotton they would need in the months to come; neither could they "hedge" against price changes, compute their costs.

Freeze Squeeze. Cotton men had one solution: drop the price freeze on all cotton below the mill level. In this, the powerful congressional cotton bloc concurred. Tennessee's Senator Kenneth McKellar led a group of 17 cotton Senators to the White House to demand that gin cotton be freed as well as farm cotton. Their argument was that the freeze would actually force prices up by keeping down production and encouraging merchants to upgrade their cotton to get better prices. Agriculture Secretary Charles F. Brannan, who wants a 60% boost in cotton production this year (from 10,000,000 to 16,000,000 bales), agreed.

But Price Boss Mike DiSalle brushed away these arguments. To him, the vaunted "delicate mechanism" of the cotton futures market is just a device to enable speculators and middlemen to get rich. Production would not be cut by the freeze he said, because farmers could make good money with cotton at 45-c- a lb. (the pre-freeze U.S. price). Without a freeze, he added, prices would rise from 20% to 30%, and speculators would profit.*

Thaw Flaw. Cotton men thought the market would stabilize again if a big new crop comes in. After all, they said, cotton was uncontrolled during World War II and rose only 3-c- a lb. Mike DiSalle spotted the flaw in that argument: during the war there was a cotton surplus: now there is a shortage.

Last week DiSalle proposed a new formula. He suggested a freeze of all cotton prices (based on an average gin price of 45-77-c-) from the farm right up to finished goods, and tossed it to Harry Truman for a decision. Said he: "I am going to fight this thing through." DiSalle had good reason for his stubbornness. Raw cotton would set a pattern for meat, metals and almost every other basic commodity. If raw cotton were freed of all controls, as the cotton men wanted, DiSalle knew that he would have little hope of controlling the other basic commodities. Without such control, there was no hope of holding the retail price line.

*In foreign markets last week, cotton was selling at 75-c- to $1 a lb.

This file is automatically generated by a robot program, so reader's discretion is required.