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BUSINESS, DOLLARS, AND COTTON A d d r e s s by Delos C. Johns P r e s i d e n t , F e d e r a l R e s e r v e Bank of St. Louis Before the SOUTHERN COTTON SHIPPERS ASSOCIATION Peabody Hotel, M e m p h i s , T e n n e s s e e F r i d a y m o r n i n g , M a r c h 27, 1953 BUSINESS, DOLLARS, AND COTTON This morning I p r o p o s e to d i s c u s s the g e n e r a l b u s i n e s s situation, but without, I hope, completely overwhelming you with s t a t i s t i c s and f i g u r e s . My c o m m e n t s , and such conclusions as I may draw, will be b e a m e d , so to speak, toward HmiTgd m a t t e r s of i n t e r e s t to cotton s h i p p e r s and d e a l e r s , and will be grouped around t h e s e main points: (1) the domestic b u s i n e s s and banking situation in g e n e r a l ; (2) the international situation, with some A c o n s i d e r a t i o n of the p r o s p e c t s for convertibility; and (3) the cotton situation and outlook. G e n e r a l domestic b u s i n e s s and banking situation When you a r e asked, "What is the state of b u s i n e s s ? 1 1 , where do you t u r n for an a n s w e r ? It is implicit in the question that an o v e r - a l l viewpoint i s wanted - not just the state of affairs, for i n s t a n c e , in the c o r n e r g r o c e r y s t o r e , which may have c e r t a i n unusual c i r c u m s t a n c e s affecting its p a r t i c u l a r business. Adoption of an o v e r - a l l point of view does not rule out c o n s i d e r a t i o n of important d i v e r g e n c e s f r o m the typical in c e r t a i n geographic a r e a s or in c e r t a i n substantial functional segments - say, coal m i n e r s , or r a i l r o a d w o r k e r s , or cotton s h i p p e r s and d e a l e r s . Nor does the o v e r - a l l point of view r e p r e s e n t a callous d i s r e g a r d for non-typical d i s t r e s s c a s e s . Rather, e m p h a s i s on the o v e r - a l l state of b u s i n e s s i s n e c e s s a r y , b e c a u s e it s e t s a tone, a background for all b u s i n e s s and for all individual i n c o m e s . One of the b e s t m e a s u r e s of the state of b u s i n e s s is the total volume of spending by individuals, b u s i n e s s e s , and g o v e r n m e n t s for the nation.s output of goods and s e r v i c e s . On that s c o r e , nothing but a bright p i c t u r e - 2 can be painted now. G r o s s expenditure at this t i m e is running at the r a t e of about one billion d o l l a r s a day. In the l a s t q u a r t e r of 1952 (latest data available) total spending in this country was at the annual r a t e of $360 billion. Suppose we b r e a k that down a bit. P e r s o n a l consumption expenditures w e r e at the r a t e of $220 billion: $120 billion for nondurable goods, $30 billion for d u r a b l e s , and $70 billion for s e r v i c e s . Government at all levels was spending at the r a t e of $80 billion: $50 billion by the F e d e r a l Government for national s e c u r i t y , and the balance by F e d e r a l , s t a t e , and local g o v e r n m e n t s for all other p u r p o s e s . Expenditure by b u s i n e s s for new plant and equipment and for i n v e n t o r i e s , together with other spending for r e s i d e n t i a l , nonfarm, c o n s t r u c t i o n was running close to $60 billion a y e a r . Construction activity continues to be a strengthening factor in the economic p i c t u r e . The p h y s i c a l volume of work put in place h a s d e c r e a s e d l e s s than seasonally since J a n u a r y , and c o n t r a c t s awarded continued substantially l a r g e r than a y e a r ago. The substantial i n c r e a s e in i n d u s t r i a l and c o m m e r c i a l building c o n t r a c t s awarded so far this y e a r over the c o m p a r a b l e p e r i o d of 1952, together with the expansion in machine tool o r d e r s since r e l a x a t i o n of p r i o r i t i e s in J a n u a r y , suggest that p r i v a t e investment is an i m p o r t a n t element in the high level of b u s i n e s s activity. And it is significant that much of the b u s i n e s s investment in plant and equipment is for civilian u s e s r a t h e r than defense mobilization. An official survey of capital budgets, conducted during F e b r u a r y and e a r l y March of this y e a r , indicates that if p r e s e n t plans m a t e r i a l i z e new plant and equipment expenditures by b u s i n e s s in 1953 will exceed those in 1952 by 2 p e r cent. - 3 Along with this high level of spending we c u r r e n t l y have high l e v e l s of employment. Nonfarm employment in the nation i n c r e a s e d slightly f r o m J a n u a r y to F e b r u a r y , 1953, although that is usually a t i m e of stability in employment s t a t i s t i c s . Unemployment was virtually unchanged f r o m the J a n u a r y level, but was substantially l e s s than a y e a r e a r l i e r . L e s s than 2 million of the 63 million people in our civilian labor force a r e unemployed. The levels of spending and employment which we have just noted r e s u l t in substantial volumes of p e r s o n a l income, some $280 billion p e r y e a r , according to the l a t e s t data available. This level of p e r s o n a l income is undoubtedly a factor inducing w i d e s p r e a d confidence in c o n s u m e r s concerning their financial p o s i t i o n s . The p r e l i m i n a r y findings of the Eighth Annual Survey of Consumer F i n a n c e s , taken in J a n u a r y and F e b r u a r y of this y e a r , confirm the existence of this confident attitude. The survey, conducted by the B o a r d of G o v e r n o r s of the F e d e r a l R e s e r v e System in cooperation with the Survey R e s e a r c h Center of the University of Michigan, r e v e a l e d that i n c r e a s e s in income during 1952 and in liquid a s s e t holdings e a r l y in 1953 w e r e widely d i s t r i b u t e d among income c l a s s e s . Increased i n c o m e , coupled with the s t e a d i n e s s of c o n s u m e r p r i c e s , caused a l a r g e r p r o p o r t i o n of c o n s u m e r s to hold the opinion that their financial positions had improved during the survey y e a r - a l a r g e r p r o p o r t i o n held that opinion than in any p r e v i o u s p o s t w a r survey. Nonfarm c o n s u m e r s as a group a r e disclosed as anticipating still l a r g e r i n c o m e s in 1953. (Similar information is not provided by the survey as to the attitude of f a r m o p e r a t o r s . ) - 4 A factor evidently at work in shaping c o n s u m e r attitudes throughout 1952 and e a r l y 1953 was the stability of c o n s u m e r p r i c e s . The B u r e a u of Labor S t a t i s t i c s 1 index of c o n s u m e r p r i c e s r o s e l e s s than one p e r cent during 1952, in c o n t r a s t to a 4 p e r cent r i s e during 1951 and a r i s e of about 8 p e r cent in 1950. Looking forward, most c o n s u m e r s (eight in ten spending units) w e r e found to believe that p r i c e s will r e m a i n stable or go down. This attitude toward p r i c e s is to be c o n t r a s t e d with c o n s u m e r s 1 attitudes e a r l y in 1951 and 1952 when one-half to t w o - t h i r d s expected p r i c e s to r i s e . Still another factor found to affect buying intentions for this y e a r is the m o r e lenient c r e d i t t e r m s available as c o m p a r e d with a y e a r and two y e a r s ago. Other aggregative m e a s u r e s of the nation r s b u s i n e s s activity c u r r e n t l y point upward. Industrial output improved in F e b r u a r y . The F e d e r a l R e s e r v e Index of I n d u s t r i a l P r o d u c t i o n for the month was e s t i m a t e d at 239 p e r cent of the 1935-39 a v e r a g e . Both durable and nondurable output i n c r e a s e d . P r o j e c t i o n s suggest a further s m a l l gain likely for this month, reflecting further expansion in automobile output. In F e b r u a r y the output of m e t a l s , building m a t e r i a l s , p r o d u c e r s 1 equipment, and m i l i t a r y equipment w e r e maintained at advanced l e v e l s . The automobile industry paced the nation, a s output r o s e f r o m an annual r a t e of 5. 5 million p a s s e n g e r c a r s in J a n u a r y to 6. 2 million. P r o d u c t i o n of major household goods, which had i n c r e a s e d m o r e than seasonally in J a n u a r y , continued at high r a t e s . Steel ingot production held close to the r e c o r d r a t e achieved in January, and one widely r e a d p e r i o d i c a l says this week that u s t e e l m i l l s a r e a cinch to pour m o r e ingots in March than ever before r r . Shoe f a c t o r i e s and paper board m i l l s - 5 both operated at substantially higher r a t e s in F e b r u a r y of this y e a r than in F e b r u a r y , 1962# The m o d e r a t e n e s s and the direction of r e c e n t p r i c e changes a r e significant. P r i c e c o n t r o l s w e r e r e m o v e d during F e b r u a r y and e a r l y M a r c h , but m o s t p r i c e s i n c r e a s e d l i t t l e . Retail food p r i c e s , in fact, continued to decline in F e b r u a r y , dropping one p e r cent between J a n u a r y 26 and March 2, l a r g e l y a s a r e s u l t of the decline in beef p r i c e s . O v e r - a l l living c o s t s have probably declined, too. At the s a m e t i m e , the l o n g - t e r m downward t r e n d of wholesale and b a s i c commodity p r i c e s was halted. Nearly all c a t e g o r i e s of wholesale p r i c e s showed strength after e a r l y F e b r u a r y , and the index a s a whole moved upward slightly f r o m m i d - F e b r u a r y to the week ended M a r c h 10. P r i c e s of f a r m p r o d u c t s , which have been among the weakest in r e c e n t m o n t h s , turned up, while c o m m o d i t i e s other than f a r m and food p r o d u c t s r e m a i n e d r e l a t i v e l y stable. This is a good p l a c e to stop and s u m m a r i z e briefly. Substantial Government p u r c h a s e s of defense and civilian goods and s e r v i c e s , an indicated high level of b u s i n e s s investment in plant and equipment, the confident attitudes of c o n s u m e r s toward their financial p o s i t i o n s , and their expectations of p u r c h a s i n g d u r a b l e goods and h o u s e s in l a r g e volume, make the underpinnings of economic activity seem f i r m l y b a s e d for the p r e s e n t and the n e a r future. It should be noted, a s of no l e s s e r i m p o r t a n c e , that the banking situation, o v e r - a l l , is sound. Total c o m m e r c i a l bank c r e d i t , expanded after mid-1952 in r e s p o n s e to l a r g e c r e d i t demand, declined after the t u r n of the y e a r through F e b r u a r y . B u s i n e s s and s e c u r i t y loans continued to decline, - 6 while r e a l e s t a t e and c o n s u m e r loans r o s e f u r t h e r . P r e s s u r e on the banks over the t a x p e r i o d in m i d - M a r c h was accommodated without undue s t r a i n . So far this y e a r , despite the r e t u r n flow of funds to the banks in the f o r m of c u r r e n c y , b a n k s 1 r e s e r v e positions have generally r e m a i n e d tight, and the l e v e l of m e m b e r bank discounts with the R e s e r v e Banks h a s been high. While banks a r e in p o s i t i o n to take c a r e of the seasonal c r e d i t demands of i n d u s t r y and a g r i c u l t u r e , at the s a m e t i m e t h e r e is likely to be no e x c e s s i v e c r e a t i o n of bank c r e d i t by the banking s y s t e m , such as would r e a c t i v a t e the inflationary p r e s s u r e s of a couple of y e a r s ago. Monetary and c r e d i t c o n t r o l s at the m o m e n t a r e contributing about as much as t h e s e c o n t r o l s can be expected to contribute to the continuation of o v e r - a l l stability in our economy. Thus, d o m e s t i c a l l y , both g e n e r a l b u s i n e s s and banking conditions may be fairly viewed on the favorable side. To cotton men, however, conditions e l s e w h e r e in the world a r e of i m p o r t a n c e , too. not just a domestic one. Cotton h a s a world m a r k e t , P e r m i t m e , t h e r e f o r e , some c o m m e n t s with r e g a r d to the international economic situation. International situation and "convertibility 1 1 Viewing foreign economic situations broadly, the significant developments of the p a s t y e a r would s e e m to be t h e s e : (1) t h e r e was no r e s u m p t i o n of inflation despite i n c r e a s e d p r e s s u r e a r i s i n g f r o m defense p r o g r a m s ; (2) t h e r e was i m p r o v e m e n t in gold and dollar r e s e r v e positions; and (3) t h e r e was renewed i n t e r e s t in the p r o b l e m of s u s t a i n a b l e , adequate flows of t r a d e b a s e d on convertible c u r r e n c i e s . - 7 The subsidence of world-wide inflation in 1951 and its containment in 1952 w e r e not solely the r e s u l t of self-limiting f o r c e s within the cycle running their c o u r s e . The change reflected action taken in most c o u n t r i e s to deal with the p r i n c i p a l international inflationary d a n g e r s . As the F e d e r a l R e s e r v e Bank of New York points out in its Annual Report for 1952: "Government budgets w e r e not all balanced; actually only a few succeeded in that. But t h e r e was growing c o n c e r n over r budget discipline 1 , and in most c o u n t r i e s vigorous efforts w e r e made to finance whatever budget deficits e m e r g e d through methods that would e x e r t the l e a s t inflationary impact. As a c o u n t e r p a r t of tighter fiscal p o l i c i e s , m o n e t a r y and c r e d i t r e s t r i c t i o n s w e r e much m o r e widely imposed, in 1951 and 1952, than at any other t i m e in the p a s t two d e c a d e s , thus helping to curb any tendencies toward an insupportably l a r g e growth of p r i v a t e investment and spending. lt Along with the fiscal and m o n e t a r y r e s t r i c t i o n s imposed, the downward r e v i s i o n or s t r e t c h i n g - o u t of defense outlays by W e s t e r n European c o u n t r i e s , as c o m p a r e d with o r i g i n a l p r o j e c t i o n s , was another important factor in avoiding inflation in 1952. It might be noted h e r e that, unlike the situation in the United States, this s t r e t c h i n g - o u t or cutting back c a m e before and not after most of the road toward o r i g i n a l goals had been t r a v e l l e d . Moreover, E u r o p e , also in c o n t r a s t with our e x p e r i e n c e , did not succeed for the y e a r as a whole in r a i s i n g production significantly to offset inflationary p r e s s u r e s , - 8 although some i m p r o v e m e n t was apparent in the final q u a r t e r of 1952 and good h a r v e s t s did provide a m o d e r a t e i n c r e a s e in p e r capita food production during the y e a r . A major development of the p a s t y e a r was the i m p r o v e m e n t in the b a l a n c e - o f - p a y m e n t s and gold r e s e r v e positions of most foreign c o u n t r i e s . Accompanying this i m p r o v e m e n t , however, was a m o d e r a t e decline in t r a d e v o l u m e s , not only among the other friendly c o u n t r i e s of the world, but also in their combined m e r c h a n d i s e t r a d e with the United States. While many c o u n t r i e s c a m e close to o v e r - a l l balance in their accounts and a number succeeded in adding to their aggregate foreign exchange r e s e r v e s , t h e r e was still an a g g r e g a t e deficit in 1952 of about $2. 5 billion on t r a d e and s e r v i c e s account (excluding m i l i t a r y aid). This r e p r e s e n t e d c o n s i d e r a b l e i m p r o v e m e n t in the dollar gap of m o r e than $11 billion which existed in 1947. It must be r e a l i z e d , however, that this reduction of the dollar deficit in 1952 was achieved in c o n s i d e r a b l e p a r t by i n c r e a s i n g l y s e v e r e r e s t r i c t i o n s upon i m p o r t s by c o u n t r i e s t h r e a t e n e d with imbalance in their international accounts, notably the sterling a r e a group. In view of the improved gold and dollar r e s e r v e positions of foreign c o u n t r i e s , even in the sterling a r e a group after m i d - y e a r 1952, attention is now being focused on a f r e s h approach to world t r a d e and p a y m e n t s problems. The new focus constitutes another significant development in the international scene during the p a s t y e a r . In this fresh approach e m p h a s i s c e n t e r s on a p r o g r e s s i v e r e p l a c e m e n t of aid by t r a d e that is based on c u r r e n c y convertibility and free international c o m m e r c e . The c l e a r - 9 implication of the shift in e m p h a s i s - so concisely put in the slogan, " t r a d e , not aid", is that foreign c o u n t r i e s recognize their b a s i c need to expand productivity and achieve a balanced output of those goods and s e r v i c e s for which they p o s s e s s a c o m p a r a t i v e economic advantage in manpower, s k i l l s , and r e s o u r c e s . It should be noted also that this shift of e m p h a s i s c a r r i e s a challenge to the United States as well: that we should o u r s e l v e s make p r o g r e s s along the road of international i n t e r c o u r s e by opening our m a r k e t s to the p r o d u c t s of the r e s t of the world. The key point of the fresh approach is to be found in the e m p h a s i s on convertible c u r r e n c i e s and the unshackling of world t r a d e among free n a t i o n s . Convertibility a s a goal h a s fairly g e n e r a l a c c e p t a n c e . oppose it as a l o n g - r u n objective. F e w vigorously Differences of opinion, s o m e t i m e s s h a r p , come in the a r e a of how and when. Take, for e x a m p l e , the r e s u l t s of the r e c e n t A n g l o - A m e r i c a n economic talks in Washington. According to the joint communique of March 11, it was a g r e e d that the achievement of a workable and productive economic s y s t e m within the free world would r e q u i r e : (1) sound i n t e r n a l p o l i c i e s "by debtor as well as c r e d i t o r c o u n t r i e s " ; (2) "the eventual convertibility of sterling and other c u r r e n c i e s and the g r a d u a l r e m o v a l of r e s t r i c t i o n s on p a y m e n t s " ; (3) a "relaxation of t r a d e r e s t r i c t i o n s and d i s c r i m i n a t i o n s " ; (4) "the c r e a t i o n of conditions both by c r e d i t o r and debtor c o u n t r i e s , which will f o s t e r international investment and the sound development of the r e s o u r c e s of the free world"; and (5) a c o n s t r u c t i v e use of i n t e r n a t i o n a l institutions to p r o m o t e t h e s e p o l i c i e s . It was indicat ed, however, that the n a t u r e , scope, and timing of specific m e a s u r e s to achieve t h e s e ends would r e q u i r e further intensive study, and - 10 that d i s c u s s i o n s would be n e c e s s a r y with other g o v e r n m e n t s and the v a r i o u s international organizations concerned, including the Organization for E u r o p e a n Economic Cooperation. ( E m p h a s i s is m i n e . ) The convertibility p r o b l e m posed is not a s easily solved as was our r e s u m p t i o n of specie p a y m e n t s in 1879. In this country people a r e free to leave one a r e a and go to another in s e a r c h of t h e i r b e s t economic opportunity. Goods can flow with r e l a t i v e l y little r e s t r i c t i o n a c r o s s state l i n e s . A dollar in T e n n e s s e e is worth the same as a dollar in Texas (even though this may be h a r d for Texans to b e l i e v e ) . Such conditions a s t h e s e do not exist among the sovereign nations of the world, even among the friendly nations. International b o u n d a r i e s a r e b a r r i e r s to c u r r e n c i e s , to goods, and to people. E s s e n t i a l l y , it s e e m s r e a s o n a b l e to say, we a r e in this p h a s e of the r e t u r n to convertibility, - the p h a s e w h e r e i n the free nations of the world a r e adjusting t h e m s e l v e s to new production p a t t e r n s which a r e n e c e s s a r y to sustain an i n c r e a s i n g flow of goods between t h e m . Success in this stage of shifting and enlarging production so that international t r a d e may be i n c r e a s e d will r e q u i r e new i n v e s t m e n t s , and, what is probably much m o r e difficult, r e a l l o c a t i o n s of m a n p o w e r . The appeal of convertibility of c u r r e n c i e s and free m a r k e t s for t r a d e is g r e a t . No b e t t e r device - consistent with individual l i b e r t y and f r e e d o m - has ever been invented to allocate capital and manpower than the composite judgments of free m a r k e t s . But achieving these goals of convertibility and free m a r k e t s is a slow, arduous p r o c e s s w h e r e many sovereign nations a r e involved. Witness, for example, our own r e l u c t a n c e to open d o m e s t i c -11 m a r k e t s to foreign goods and to lend on p r i v a t e account to other n a t i o n s . Notwithstanding the difficulty of attainment, the free world should push ahead toward these twin g o a l s . P e r h a p s it would be fitting to c l o s e this portion of the d i s c u s s i o n with the words of an eminent B r i t i s h scholar who said in a 1952 t r e a t i s e on "The Pound Sterling' 1 : f! I have the uncomfortable feeling that u n l e s s advocates of free e n t e r p r i s e a r e converted . . . (to a doctrine of unlimited convertibility of c u r r e n c i e s and unlimited a s s i s t a n c e f r o m the C e n t r a l Banks to the money m a r k e t s in t i m e s of c r i s i s ) , f r e e e n t e r p r i s e in the world will p e t e r out, and that the detailed manipulation of foreign trading r e l a t i o n s will grow ever m o r e complex and minute, until we have fastened upon u s , not p e r h a p s a t o t a l i t a r i a n s y s t e m , but one equally rigid, the r e s u l t of j a r r i n g b i - l a t e r a l b a r g a i n s . ft ./ Cotton situation I enter this field with c o n s i d e r a b l e . t r e p i d a t i o n b e c a u s e I face h e r e a company of e x p e r t s on this topic and p a r t i c u l a r l y on the question of foreign demand for our cotton. Doubtless I ought to sit down at this point and let Caffey R o b e r t s o n take o v e r , but I have decided to plunge ahead with the hope that Caffey will c o r r e c t me if I need it. E s s e n t i a l l y the c u r r e n t cotton situation is one of world-wide s u r p l u s e s . L a r g e supplies in the United States, in B r a z i l , Egypt and e l s e w h e r e this side ./ Roy F . H a r r o d , "The Pound Sterling", page 3. - 12 of the Iron Curtain a r e dominant f o r c e s in the cotton m a r k e t s of today. The 1952-53 c r o p y e a r will produce something in e x c e s s of 28 million b a l e s of cotton according to e s t i m a t e s b a s e d on ginning figures covering a l a r g e p r o p o r t i o n of the c u r r e n t crop in the N o r t h e r n H e m i s p h e r e and on c r o p p r o s p e c t r e p o r t s f r o m the South A m e r i c a n c o u n t r i e s . F r e e world production, p r e s e n t l y e s t i m a t e d at 28. 2 million b a l e s , is expected to be slightly under 1951-52 production, but when added to the 13 million bale c a r r y - i n August 1 (last) gives a total supply of 41. 3 million b a l e s - a p o s t w a r r e c o r d . This supply a p p e a r s sufficient to provide for consumption about equal to that of 1951-52 and to add another 2 million b a l e s to c a r r y - o u t stocks on August 1, 1953. F u r t h e r , it s e e m s c l e a r that i m p o r t e r s of cotton a r e inclined to let the e x p o r t e r s c a r r y the b u r d e n of the s u r p l u s . Stocks will accumulate in the exporting c o u n t r i e s . United S t a t e s . e x p e r i e n c e is s i m i l a r . Adding this c r o p y e a r r s 15 million-bale production to some 140, 000 b a l e s of i m p o r t e d and "city crop 1 1 cotton then to a c a r r y - i n of 2, 745, 000 b a l e s (made up l a r g e l y of "free 1 1 c a r r y - i n with only 239> 000 b a l e s under Commodity Credit control), total available supply h e r e should come close to 17. 9 million b a l e s . Such a supply would exceed that of the two p r e v i o u s y e a r s but would be l e s s than the 21. 5 million of 1949-50. In t e r m s of use or "disappearance 1 1 of this total supply, it i s expected that d o m e s t i c consumption, despite a s e t - b a c k in J a n u a r y , will be just slightly b e t t e r than l a s t y e a r , exports l e s s , and c a r r y - o v e r , p a r t i c u l a r l y in the loan, substantially m o r e . E x p o r t s a r e the key to the significant difference in d i s a p p e a r a n c e of - 13 total supply this y e a r as against l a s t . F o r e i g n demand for United S t a t e s 1 cotton h a s been c u r t a i l e d and our exports have been running l e s s than half of l a s t y e a r . s r a t e , having totalled 2. 2 million b a l e s through March 14. The decline can be attributed to (1) g r e a t e r availability of "non-dollar 1 . cotton, (2) the tendency for i m p o r t e r s to let the p r o d u c e r s c a r r y the b u r d e n of the s u r p l u s , and (3) the possibility of "dumping.. g o v e r n m e n t - h e l d B r a z i l i a n cotton on the world m a r k e t . Despite a half-million bale decline e s t i m a t e d for free world cotton production in the c u r r e n t c r o p y e a r as c o m p a r e d with l a s t , production of cotton is c u r r e n t l y up in P a k i s t a n , Turkey, Egypt, Anglo-Egyptian Sudan, and other non-dollar a r e a s - excluding India. E x p o r t s f r o m these c o u n t r i e s , according to the l a t e s t available information, a r e running substantially ahead of y e a r - a g o volumes. Thus, even with no change in world—wide supply-demand r e l a t i o n s h i p s , United States 1 e x p o r t s would be at a disadvantage this y e a r . With the additional l e v e r a g e afforded i m p o r t e r s by the surplus accumulation, the United States - the world 1 s l a r g e s t e x p o r t e r of cotton - is under still further p r e s s u r e . Reasonable "guesstimates 1 1 on United S t a t e s 1 exports for the c u r r e n t y e a r range f r o m 4. 25 million b a l e s (by an MSA official who s t a r t e d l a s t fall with a 5, 3 million figure) through the USDA.s l a t e s t e s t i m a t e of 4 million, to that put out in F e b r u a r y by a leading spot f i r m , 3. 5 million. A range of 3. 5 million to 4. 0 million in exports coupled with, say, 9. 3 million in domestic u s e l e a v e s a substantial c a r r y - o u t at the close of this c r o p y e a r - namely 4. 5 million to 5. 0 million. Such a c a r r y - o u t c o m p a r e s with 2. 7 million b a l e s l a s t y e a r , 2. 3 million the y e a r before that, and with - 14 6. 8 million in the c r o p y e a r 1949-50. P e r h a p s a fair e s t i m a t e at the m o m e n t of the amount of the c a r r y - o u t that will be found in the CCC pool is a half and half split, again depending on the export v o l u m e . The lower this volume, the g r e a t e r the p o r t i o n of the c a r r y - o u t in the loan, and vice v e r s a . The free c a r r y - o u t will likely r a n g e between 2. 0 and 2. 5 million b a l e s and should r e p r e s e n t an adequate supply for the t r a d e . Now, what of p r o s p e c t s for the coming y e a r ? another l a r g e cotton a c r e a g e a p p e a r s p r o b a b l e . If weather p e r m i t s , In the p a s t , cotton p r o d u c e r s have seldom reduced a c r e a g e m o r e than four or five p e r cent f r o m the p r e v i o u s y e a r except under unusual c i r c u m s t a n c e s or when a c r e a g e c o n t r o l s w e r e in effect. R e p o r t s to date suggest that p r o d u c e r s will again plant cotton in a big way in 1953, b e c a u s e 1953 a c r e a g e would be included in determining individual f a r m a l l o t m e n t s in c a s e of subsequent imposition of restrictions. F u r t h e r , in many a r e a s , cotton (even at c u r r e n t p r i c e s ) still p r o v i d e s the g r e a t e s t net r e t u r n p e r a c r e , considering that p r i c e s of m o s t a g r i c u l t u r a l c o m m o d i t i e s , along with cotton, have had substantial d e c l i n e s . The a r e a that is in g r e a t e s t question r e g a r d i n g a c r e a g e i s again the w e s t e r n section of Texas and Oklahoma, where m o i s t u r e r e s e r v e s a r e low and abundant rainfall will be needed this spring and s u m m e r to induce full planting of d r y land a c r e a g e . Another factor in the cotton f a r m e r s 1 intentions to plant is that the loan r a t e on next y e a r . s c r o p will be higher than on this y e a r c s , p a r t l y b e c a u s e of the s p r e a d between 7/8 11 and 1 5 / l 6 n p r i c e s . to 32. 50 cents s e e m s likely. A loan value of close - 15 So - I a s k myself what I would do if I w e r e a cotton p l a n t e r . The answer is that I would probably plant cotton, despite the r e q u e s t e d voluntary 18 p e r cent a c r e a g e reduction. I would plant cotton just in c a s e o t h e r s should also ignore the r e q u e s t for voluntary a c r e a g e reductions and plant cotton, leaving me behind. The r e c o r d shows that since 1920 t h e r e have only been eleven y e a r s when a c r e a g e as of July 1 was cut 5 p e r cent or m o r e f r o m the p r e v i o u s y e a r , and in each instance some compelling force was p r e s e n t : p r i c e c o l l a p s e , a d v e r s e w e a t h e r , labor s h o r t a g e s , or Government r e s t r i c t i o n s . It will take some such powerful force to r e d u c e a c r e a g e this y e a r , in all likelihood. E a r l i e r M a r c h e s t i m a t e s by a leading spot f i r m support this judgment with a figure of b e t t e r than 27 million a c r e s to be planted, in c o n t r a s t with 26, 460, 000 planted l a s t y e a r - an i n c r e a s e instead of the r e q u e s t e d 18 p e r cent decrease. F u r t h e r , c r o p planting intentions in other commodities announced March 17 suggest no major shift to these c r o p s such a s could be expected if cotton w e r e to be cut. Thus with no major change in a c r e a g e this year (or even some slight i n c r e a s e ) the cotton f a r m e r s a r e r e p o r t e d a s feeling that this y e a r r e p r e s e n t s the l a s t chance before the r e t u r n of a c r e a g e c o n t r o l s . c o n t r o l s for the 1953-54 s e a s o n . The c r o p just m i s s e d Many in the t r a d e believe that continuation of p r e s e n t t r e n d s m a k e s c o n t r o l s a r e a s o n a b l e probability for the 1954-55 c r o p , u n l e s s war or drouth i n t e r v e n e s . B a r r i n g t h e s e , cotton p r i c e p r o s p e c t s would not s e e m b r i g h t . In conclusion, what I have taken so long to say can be c o m p r e s s e d into t h r e e points: - 16 (1) B u s i n e s s i s g o o d h e r e a t h o m e . (2) Internationally (except for the alternating w a r - p e a c e tensions) conditions a r e fair and i m p r o v i n g . (3) F o r cotton, p r o s p e c t s a r e l e s s bright with, export volume down and l a r g e production apparently ahead. My saving thoughts as I have been delivering these c o m m e n t s w e r e , f i r s t , that a lot w o r s e outlooks have been successfully faced by cotton s h i p p e r s and d e a l e r s in y e a r s p a s t and, second, that if I w e r e always right I would be apt to be out t h e r e with you and not up h e r e on the p l a t f o r m in the guise of a Federal Reserve banker. oooOOOooo
@FedFRASER