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THE PRESENT COTTON SITUATION.
SPEECH OP W. P. G, HARDING, MEMBER FEDERAL RESERVE BOARD,
UNDER THE, AUSPICES OF THE BIRMINGHAM CHAMBER
OF COMMERCE, AT BIRMINGHAM, ALABAMA* FRIDAY
EVENING, MARCH TENTH, 1916.
(For release Saturday morning, March 11)
During the next six weeks, assuming normal weather con
ditions,
the cotton crop of 1916 will he planted.
While
the acreage put in cotton will hear a direct relation to the
size of the new crop, other factors must he considered in
reaching conclusions as to the final outcome.
The quality
and amount of fertilizer used, the character of the season,
methods of cultivation,
the ravages of the hell weevil and
other insect damage will all have an important hearing,
so
that under some conditions it is conceivable that thirty
million acres planted in cotton will produce a larger yield
than thirty-five million acres under other conditions.
The
new crop acreage however, which will probably he known
definitely within the next sixty days, will play an import
ant part in fixing the market value of that portion of the
crop of 1915 which remains unsold, for it is likely that not
until July will reports of condition of the growing crop
become a factor in price control.
It will he remembered
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that during last July there was a decided slump in the cotton
market which brought about an extremely nervous feeling
throughout the South.
Despite the very vigorous and dili
gent campaign that had been made in the spring of 1915 for
a sharp reduction in cotton acreage, reinforced as it was by
the severe object less*a of the dangers of over-production
that had been impressed upon cotton growers during the preced
ing Fall and Winter,
it was found that the area planted in
cotton had been reduced by only about 15$.
The season up to
July had been propitious and there was much talk of a new
crop of at least fourteen million bales.
It was known also
that. Great Britain intended to declare cotton an absolute
contraband, which was regarded as meaning the loss of a mark
et for about two and one-hglf million bales which had usually
gone to Germany and Austria, and which had, to a considerable
extent during the season of 1914-1915, reached those
countries through neutral ports.
Farmers and business men
throughout the South were aroused, and, without any definite
organization, but through the force of public sentiment, a
policy of gradual marketing was decided upon.
Warehouse
facilities had been found to be adequate and the banking
situation was such as to render ample funds available to
carry out such a policy.
At the same time it became evident
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that the yield would not he as large as had been anticipated,
so that consumers, finding that there be no rush of cotton to
the market, for sale at forced prices, began to contract for
their wants, and prices advanced rapidly.
The new crop, in
stead of bringing seven to eight cents per pound,
as had been
predicted by many pessimistic persons, found a ready market
up to 12g-/ per pound, and cotton seed advanced in a corres
ponding degree so as to give producers the equivalent of
$20.00 to *22.50 per bale from sales of seed.
The advance
attracted speculative interest and by December some enthusiasts
had visions of 15 to 18 cents per pound.
Many farmers and
merchants who, a few weeks before would have sold most gladly
at 12 cents, caught the infection and decided to hold for the
much higher prices which they felt were coming.
About this
time however, the export movement began to compare unfavorably
with the previous season.
Ex:cept as to coastwise trade, our
ocean freights are carried almost entirely in foreign bottoms.
Of these, German vessels are idle, being interned in neutfsp.
ports throughout the world,
of the North Sea.
or else blockaded in the waters
This scarcity of shipping has caused a
great advance in ocean freight rates, which are from six to
ten times the normal, so that rates on cotton from American
ports to Liverpool have been ruling as high as three dollars
per hundred pounds,
or fifteen dollars per bale, being three
cents per pound*
Even at these abnormal rates,
exports of
cotton have been restricted, as ship owners, acting probably
under instructions from their Governments, have given prefer
ence to cargoes of grain and munitions.
stocks abroad have been greatly reduced,
Under these condition
and during the
month of January there was a time when the stock at Liverpool
was sufficient to supply British spindles for less than six
weeks, with prices ruling at 18/, against 12/ in Hew York.
There is reason to believe however,
that during’the past
month arrangements have been made to increase the ship room
available for cotton, and there has been some increase in the
supply at Liverpool, London and Manchester.
The total stocks
in Great Britain on March 3rd have been estimated to be
1,000,000 bales, against 1,452,000, 1,209,000 and 1,498,000
bales for the same date in 1915, 1914 and 1913, respectively.
The depletion of stocks on the Continent is still more marked.
The Financial Chronicle estimates the supply of stock at Ham
burg, Bremen and Trieste to be about 1,000 bales at each
point, against a total of 384,000 bales on March 1st, 1315,
570.000 bales in 1914, and 578,000 bales in 1913;
cluding stocks at Havre, Marseilles,
and, in
Barcelona and Genoa,
it
estimates Continental stocks on March 3rd at 479,000 bales,
against 1,083,000 bales in March 1915, 1,065,000 in 1914 and
1.089.000 in 1913.
The Chronicle places the total visible
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supply for the world on March 3rd at 5,777,448 bales, against
7,607,227, 6,107,140, and 5,491,952 bales in 1915, 1914 and
1913, respectively.
In Egypt figures relating to cotton re
ceipts are expressed in cantars, approximating 100 pounds, and
exports in bales which weigh about 750 pounds.
Reducing the
figures to the equivalent of 500 pounds to the bale, receipts
of cotton at Alexandria from August 1st to February 9th have
been, according to the same authority,
790,300 bales against
042,500 bales last year, and 1,350,000 bales for the same date
in 1914.
The Financial Chronicle's report dated Friday night,
March 3rd, gives the following statement as to the movement
of the crop for the week:
Total receipts,
107,849 bales,
against 156,956 and 142,403 bales for the two weeks immediately
preceding.
Total receipts since August 1, 1915, 5,402,039,
against 8,093,162 for the same period of 1914-15.
since August 1, 1915, 2,691,123 bales.
142,143 bales,
Decrease
Exports for the week,
of which 73,972 were to Great Britain,
to France, and 44,046 to the rest of the Continent.
24,125
Total
exports August 1, 1915 to March 3, 1916, to Great Britain,
1,755,493 bales, against 2,487,993 bales for the same period
last jTear;
to France, 510,883, against 376,892;
to Continent,
1,295,565, against 2,672,188, making a grand total of 3,561,941,
against 5,537,073 last year, and 7,296,085 for 1913-14.
export movement therefore,
The
is approximately 2,000,000 bales
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behind last year and nearly 3,750,, COO bales under 1914.
There
seems to be no material difference of opinion on the part
of various authorities as to stocks of cotton held abroad or
as to the exports,
but there is some divergence in the views
as to the domestic situation.
A well known cotton authority,
who prefers not to be quoted, gives me. the following estimate
of the supply of cotton in America on July 31, 1916, at the
close of the current cotton year:
Visible supply in U. S., July 31, 1915.......1,300,000
Unmarketed on plantations, July 31, 1915.... 1,800,000
Crop 1915-1916 (including linters)..... ....12,250,000
Total supply this season................15,350,000
American consumption..... .
.7,000,000
Total exports........... ..6,500,000
15,500,000
leaving on hand visible and invisible. . Z 1,850,000
and checks his figures as follows:
Unmarketed July 31st, 1915.................... 1,800,000
Crop, 1915-16............................... .13,250,000
Total supply from plantations......... ..14, 050,000
In sight to February 26th, 1916........... .. 9, 554,795
Unmarketed supply February 26th......... 4 495,205
Stock U. S. ports, Feb. 26th................. 1 410,285
Stock Interior towns Feb. 26th............. 1 102,047
Total supply in U. S. Feb. 26th......... 7,007,537
U. S. Consumption, season....7,000,000
Total takings to Feb. 26th...4,684,000
Still to be taken.......2,316 ,'000-2316000
Exports, season
6,500,000
Exports to Feb.26th..........3,561,922
Still to be exported. ... .2,9"S8,078-2938078
5,254,078
1,753,459
I quote as follows from a letter received from him:
"It is reasonably plain that if we export 6,500,000
hales of cotton this year, w e .shall not have more
than about 1,800,000 hales left over in the United
States.
This includes the cotton at the ports and
interior towns as well as the unmarketed supply on
the plantations.
I do not think it can be consi
dered burdensome with the financial facilities that
the Federal Reserve Banks provj.de, and if the war
ends during the present summer, I believe that all
the cotton that is left over and all that America
can possibly produce next year will be required to
fill up the vacuum created by the blockades and the
w a r .,T
Another view is given in the weekly cotton letter dated
March 4th of a well known brokerage house which adopts the
figures and estimates of the Watkins Bureau.
From this
s t at erne nt I quo t e :
"The world's visible supply of American cotton is
now 1,604,000 bales less than at this date last
year and 64,000 less than in 1914.
The stocks of
American cotton in Liverpool with one exception,
are the smallest in the past ten years, and prac
tically the same is true of Continental stocks of
American cotton.
Our cotton markets are absolutely
closed to Germany and Austria, which was not the
case at this date last year and yet in spite of
the extraordinary advance in ocean freight and in
surance (the rate to Liverpool is now $15.00 a
bale as compared with about $1.00 August 1, 1914)
we exported the first six months of the season
2.961.000 bales and to date 3,680,001, clearly in
dicating an export movement for the season of
fully 6,000,000 bales. The domestic consumption
for the first six months of the season amounted to
3.528.000 bales and it is increasing as the season
advances, foreshadowing a total of fully 7,250,000
bales for the year.
With a supply of about 14,675,000
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bales (made up from the carry-over from last year
of 2,765,000 bales, the crop estimated' by the
Government at 11,161,000 and an'estimated 1 inter
crop of 750,000) and allowing 6„000,000 bales for
export and 7,250,000 for domestic consumption, we
would close the season with an apparent surplus of
1,425,000 bales«-,T
There is a difference in the estimates of these two authori
ties of 425,000 bales.
The first mentioned estimate places
the carry-over from last year at 3,100,000 bales, while
the second puts the amount carried over at 2,765,000 bales.
The first places the present crop,
including linters, at
12,250,000 bales, while the second, accepting the Government
estimate, figures the crop, including linters, at 11,911,000
bales.
The first estimate puts American consumption at
7,000,000 bales and exports at 6,500,000 bales,
of 13,500,000 bales;
or a total
while the figures given by the second
are 6,000,000 bales for export and 7,250,000 bales American
consumption,
however,
or a total of 13,250,000 bales.
Mr. Watkins
from
says further that/the apparent surplus of 1,425,000
which is shown according to his figures,’'there must be de
ducted 1,179,000 bales of linters, 429,000 carried over from
last year and the linter crop of this year,
750,000,
every
bale of which will go into the manufacture of explosives.
This cuts the spinner1s supply down to about 13,500,000
bales, leaving an apparent surplus at the close of the season
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of about 250.000 bales*"
I am informed that the Census
Bureau in its statistics relating to the uses to which cotton
is put,
is confined to the consumption cf raw dotton,
in
cluding linters, and that additional legislation will be
necessary to enable the Census Bureau to report on the con
sumption of cotton which has been specially prepared or
treated.
At a recent hearing before one of the House com
mittees it v/as brought out that the Census Bureau regards an
estimate of 1,000,000 bales of cotton used in America during
1915 for the manufacture of explosives as conservative, and
the statement was made at the time by the representative of
the Bureau that it is possible that as much as 1,500,000 bales
had been used in this way during the year in the United
States.
It has been estimated unofficially that 2,000,000
bales were used in Europe last year in the manufacture of
l
explosives, but I am told that the Census Bureau has no
figures which throw any light upon the consumption abroad
of cotton for this purpose.
It is evident that muc& of the
cotton now being exported to Prance is being used for ex
plosives, as most of the cotton mills of Prance and all of
those of Belgium are now within the German lines and are
presumably not running for lack of cotton, although it is
impossible to obtain definite information on this point.
Swiss mills are said to be very busy, but their supplies of
cotton have been cut off recently because they were supposed tO
be selling to Germany and Austria*
Consumption by mills
in Norway and Sweden, Holland and Spain, would be abnormally
large if they could get the cotton, but high freights and
naval operations in the North Sea have rendered their supply
precarious.
Japanese mills will undoubtedly consume a
great deal of cotton, but on account of proximity and lower
freights they will probably take all they can from East
India.
The Russian mills are reported to be busy, but their
supplies of American cotton must, for the present, come by
way of Vladivostok, which means a long and expensive overland
haul on a railroad congested with war material.
The Port
of Archangel however, which is ice-bound at present, will be
open in May, and it is probable that Russia will q.dd to its
stock of American cotton after that time.
It is interesting to contrast the export movement during
the present season with that of the last.
The outbreak of
the war in Europe on the first of August 1914 resulted in a
practical stoppage of cotton exports until November.
During
December and January 1915, the movement abroad was heavy.
While this movement was stimulated in February and March by
the announcement of the forthcoming blockade of British waters
by German submarines,
the volume of exports continued satis
factory until early in May, or until the sinking of the
Lusitania.
Prom this time on the export movement diminished
appreciably and the advancing tendency in cotton prices was
checked, followed by the slump in July, to which reference
has already been made.
During the present season, exports
from August to November ran considerably ahead of the very
light movement of the preceding year, but since November,
owing to the reasons already outlined, the export movement
compares unfavorably with that of the previous season, al
though the movement for February compares well with that of
February 1914.
The decline in cotton prices seems to have
been definitely checked about the first of March.
It is
said that several British merchant ships hitherto used as
transports, are to be restored to commercial uses in the
trade between New York and Liverpool.
Italy and Portugal
together have seized over 60 German steamers which have been
interned in their ports, the presumption being that these
steamers will be put into commission for mercantile purposes.
At any rate, there has been an easing in ocean freight rates,
which now show a decline of &0$/ per hundred,
or $2.50 per
bale from quotations current the latter part of February.
Announcement was made a few days ago that 12 steamships are
-IE-
due to arrive at an early date at Galveston, which will load
with cotton from that port®
The latest issue of the
Economic World, which is a recognized authority on the
textile trade, has this to say regarding the demand for
cotton:
w The margin of profit between the cost of raw
cotton and the market values of goods in the
United States is now unusually wide, and it
is the part of commercial wisdom for the manu
facturer to secure fsrr himself this margin of
profit, no matter what his inclination or judg
ment may be with respect to a possible wider
margin of profits in the future.
This consi
deration has induced a fair amount of buying
for the account of American spinners during
the past week.
Were it not that much the larger
part of the requirements of our mills for the
season has already been secured, this buying
might be counted upon as a sustaining and per
haps even as an advancing influence in the markets
for the imm§diate future.
In addition to this
buying for American account, some buying for
foreign account has been in evidence.”
The ability and disposition of the banks of this country to
take care of the legitimate wants of their customers, as well
as to carry well secured ‘loans for those who are not customers
has never been greater than at present.
At the close of
business on March 6th the total of all paper under discount
with Federal Reserve banks, including rediscounts for member
banks, open market jjurchases of bankers1 acceptances, trade
acceptances and commodity loans carried for member banks, was
slightly over $51,000,000 against total deposits held by these
980
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institutions 6f $454,761,000;
while on January 2nd the amount
of paper under discount was over $54,000,000 against deposits
of $431,085,000.
Except in the Richmond and Atlanta dis
tricts the loans secure)! by cotton receipts are of a negligibl
amount, and in these two districts they have been considerably
reduced since the first of the year.
The total bills dis
counted with the Federal Reserve Bank of Atlanta,
including
the New Orleans Branch, was, on January 2nd, $8,200,000.
On March 6th this amount had been reduced to $4,420,000. The
amount of loans held by the Federal Reserve Bank of Richmond
on January 2nd was $7,612,000, and on March 6th the amount of
its loans was $6,433,000.
The amount of discounted paper
held by the Federal Reserve Bank of St. Louis cn January
2nd was $1,915,000, while on March 6th the amount was
$1,429,000.
The loans of the Federal Reserve Bank of Dallas
on January 2nd amounted to $4,911,000, and on March 6th to
$4,550,000.
The same conditions are reflected in the state
ments of member banks.
In all sections of the country first
class commercial paper is sought for at abnormally low
rates, and I may say that for several months past the chief
concern of the Federal Reserve Board over the monetary situa
tion in this country for the immediate future has been that
the unusually low rates prevailing in financial centers might
lead to an unwise inflation of credits.
There is every
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reason to believe that exports of cotton will continue on
approximately the present scale during the spring and summer
months, up to the close of the present cotton year, and there
seems to he little danger of there being an unwieldy surplus
carried over into the next season.
There is undoubtedly a
considerable amount of unsold cotton in the South which is
being held by farmers and country merchants, but the amount
is probably no greater than in some previous years, as the
stocks reported at interior towns on March 3rd amounted to
1,080,000 bales, against 1,063,000 bales at the same towns
on March 5th 1915.
During the week ended March 3rd the in
terior stocks decreased 35,761 balos, and receipts at all
towns were 84,838 bales less than for the same week last
year.
Attention is invited to the Financial Chroniclers
comparative statement of amount brought into sight and
spinners1 takings for the weeks ended March 3rd, 1916 and
March 4th, 1915:
-15-
In sight and spinners*
Takings.
Week
Receipts at ports to
March 3.......0.®.. 107,849
35,173
ifet overland to 3/5.
Southern consumption
82,000
to March 3 .........
Total marketed... 225,022
Interior stocks in
excess.............. *35,761
Came into sight dur
ing week........... 189,261
Total in sight 3/4..
Uorth spinners* tak
ings to March 3....
34,396
*Decrease during week.
1915-16
Since
Aug. 1
1914-15
Week
Since
Aug. 1
5,402,039
1,011,489
284,634
31,314
8,093,162
921,677
2,190,000
60,000
1,830,000
8,603,528
375,948
10,844,839
634,711
*64,959
943,420
310,989
11,788,259
9,238,239
88,743
2,135,026
2,047,309
Movement into sight in previous years:
Week1914 March 6
1913 March 7
1912 March 8
Bales
198,304
154,692
281,157
Since Sep t .1.
1913- 14 March 6
1912- 13 March 7
1911- 12 March 8
Bales.
12,673,042
11,856,556
13,421,418
Some private letters that I have received state that
there were perhaps two million hales of cotton held on March 1st
by Southern farmers and local merchants.
If all of this cot
ton, or any large part of it should be thrown upon the market
at once, there would undoubtedly be a break in prices. But five
months, or about 21 weeks will elapse before any new cotton can
cone on the market.
With the demand for export and from
American spinners which seems assured,
there is no reason to
('Q9
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doubt the ability of the market to absorb much more than
100,000 bales per week.
I refrain however, as I have always
done, from giving advice in particular cases,
I believe that
the policy of gradual and orderly marketing of the crop has
been proved to be the correct one by the course of the market
this season, and, while there are no doubt many holders of cot
ton who will regret that they did not sell when prices were
higher, it is no doubt true that the higher prices last fall
were obtainable by reason of the fact that there was s^o un
seemly rush of cotton to the market;
ownership,
and, without regard to
it is safe to assume that the cotton held back has
contributed its part to the prices realized for cotton that has
been sold.
I wish that each individual farmer would remember*,
when the time comes for him to determine how much of his land
he will put in cotton this spring,
that we are living in unusual
anft
times and that it is impossible for any man or/group of men to
forecast with certainty what the consumption of a staple like
cotton will be.
I believe in the gradual and orderly marketing
of crops, but I believe just as firmly in the diversification
of crops.
i'a,rmers of the Northwest who produce the bulk of th^
great food crops of this country, have learned that it is
dangerous to place reliance in one crop, even though it be a
food crop, and, while they cannot raise cotton^ they diversify
by planting different kinds of grain, and by producing more than
984
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one kind of food.
I quote q statement that was made recently
by a prominent bank in the Northwest:
"The investment market does not seem to be as active
as the large amount of money in banks and the heavy
savings balances would ordinarily indicate. General
interest rates are so low that many people are con
tent with savings bank interest.
The demand for
farm mortgages is very strong, but our farmers are
in such excellent condition financially that the
supply of mortgages continues to be less than the
demand.
This, of course, has resulted in a decrease
of rates to the farmers. Mortgages from the best
farming communities of Minnesota and the Dakotas are
especially hard to obtain.
In former years, when
there were plenty of these securities, it wq,s not
necessary for capital to go into the newer parts of
the Northwest unless attracted by high rates.
It is
probable that present conditions will turn large
amounts of money to investment in the less populous
portions of the Northwestern States and will result
in increased settlement and greater value for land.
Whether this condition will result in an extended
movement ’'back to the farm,1 cannot, of course, now
be predicted, but tendencies in that direction have
already been reported from two or three sources.”
I am sorry that I cannot yet quote similar statements from
Southern sources, but I think within a few years, after the
South has learned the lesson of diversification, that like con
ditions will prevail, at least in favored sections.
subscribe to the
I wish to
loctrine that is being and has been for years
so effectively preached by one of the best known, and perhaps
the most useful citizen of Alabama, Mrs.
G. H. Mathis, who has
a message of cheer and hope wherever she goes and who inspires
thedispirited with new hopes and aspirations.
diversified farming.
She believes in
She says that farming is a good business
985
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It is sick of cotton and by running the land down you are having
to mortgage your property to death, and are making the crop
self-consuming.
Build it up.
There are certain robber crops
and certain builder crops that everyone ought to know.
robber crops are cotton, corn, wheat and oats.
are peas,
The
The builder crops
beans, clovers and vetches, and you can build the land
in winter when it is not in use.M
I am told that there are farmers in Alabama, and perhaps
in all Southern states who have never grown a stalk of corn.
Let the farmersrealize, and I urge upon merchants and bankers
the importance of persuading them, that an increased acreage in
cotton will be looked upon as an arguipent in favor of lower
prices for the remainder of the crop now being held, although
it is by no means certain that a large acreage would yield a
larger crop than a smaller and better cultivated area.
Let us
suppose things turn out this year as some optimists predict.
Suppose peace should be restored and there springs up a greatly .
increased demand for cotton.
Under such conditions a large crop
would of course sell for a great deal of money, but with the
experience of 1910 and 1911 before us, is there any reason to
doubt that a moderate crop would sell for still more?
other hand,
suppose the war continues;
On the
suppose, unhappily,
this
986
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country should become involved, —
and remember that in times
of stress, when it comes to a choice between something to eat
and something to wear, food must be provided at any cost, while
new clothes can wait.
Then I ask, would we not be far better
off with a moderate supply of cotton and an abundance of food
supplies?
thoroughly?
Why plant a larger area than can be cultivated
Why scatter high priced fertilizer over a large
field when it would be more effective concentrated on a smaller?
These matters must be determined nowj
too late?
A month hence will be
Let the farmers, the merchants and the bankers cf
the South take counsel together, and let the newspapers, and
those published at the county seats particularly, advocate
in every issue for the next six weeks, and with all their force
and power,
the doctrine of diversification, and let them point
out the dangers of the one crop system^
Remember, my friends, that if the war continues for six
months longer, in all probability the purchasing power of Europe
will be seriously impaired.
The cost of munitions and supplies
is enormous, and food prices in the warring countries are soar
ing.
According to the Bureau of Labor Statistics of the
Department of Labor, good, taken as a whole in the United States
costs Ztfo more today than it did a year ago.
Prices in Great
Britain have increased about 44$ and in Prance about 22$.
In
r 07
-BOother "belligerent countries the advance has *been 1 0 0 % ,
Remember that the cotton exchanges are not eleemosynary in
stitutions, and that operators on cotton exchanges have no
sentiment except a desire for gain,
Market opinions vary as
conditions change, and operators are not consistent bulls or
bears, but shift their position without notice as new condi
tions arise.
The fact is realized in all the cotton markets
of the world that the course of prices depends primarily upon
the supply, and for the next three months at le^st, estimates
of supply will be based upon the new crop acreage.
What this
acreage will be in America depends upon the farmers of the
South*
Should they decide during the next few weeks to pro
duce their food stuffs at home and to plant cotton as a money
crop, their position will be secure, but if, disregarding all
the warnings and portents of the times, they decide upon a
policy of all cotton, they will be taking a tremendous risk
which no prudent business man would care to assume.
The Southern farmer is most powerful as a factor in the
cotton market at planting time.
"Every man at times is master of his fate#
«
The fault, dear Brutus, is not in our stars,
hut in ourselves,
That we are underlings."
@FedFRASER