average results, and, as already noted, for cotton the price went higher before the break, and fell lower immediately afterwards, than for farm products generally, or than for all commodities combined.

The relatively high price of cotton in 1919-20 seems to have been due in part to the expectation that there would be a world shortage of cotton. There was a heavy increase in consumption, which seemed to portend the much greater increase which would be involved if there should occur a return to the pre-war standard. The extraordinary rise in the price of cotton in 1919-20, as compared with other commodities, appears, therefore, to have been due largely to marked increases in consumption and to anticipated further increases.

The most important factors in the sharp decline of prices in 1920-21 were the marked increase in supply and decrease in demand. The 1919-20 consumption had not outstripped production so that apparently the world carry-over at the end of that crop year was larger than at the beginning and fully as large as the pre-war standard This was followed later by a sharp reduction in consumption. Increases in the United Kingdom's exports of piece goods to India stopped by May, 1920, while exports to China reached the highest level in April, 1920. Apprehension began to be felt, apparently, that cotton had about reached its highest level, and led to some decline in purchasing. About July or August, 1920, the dry-goods trade practically ceased buying cotton goods, and mill consumption in the United States fell from 555,000 bales in June to 295,000 bales in December. The European market did not react either as quickly or as violently, but the first half of 1921 was characterized by a severe depression in the cotton industry throughout Europe and diminished exports of cotton piece goods from England. English mills were idle a total of 13 weeks out of the 26 between February and July, 1921, and the carry-over of cotton on July 31, 1921, was appreciably greater than the large carry-over of the preceding year. The cotton price decline of 1920-21 was followed by a rise in September and October, 1921. The carry-over both of the United States and of the world had been very large, but a very small production was anticipated. The 1921 crop in the United States proved, in fact, to be the smallest since 1895. Since August, 1921, the money price of cotton has been above that of 1913, and measured in commodities either slightly below or more recently considerably above its real exchange value in that year. In this recovery the War Finance Corporation activities were of considerable importance. From the date of its revival, January 4, 1921, to November 30 of that year, the corporation advanced $28,000,000 for financing cotton exports and over $22,000,000 under the terms of the agricultural credits act. In all, the corporation agreed, during that period, to finance approximately 1,000,000 bales of cotton.

In conclusion, as to prices, it may be said that while it does not appear that cotton prices, compared with the general level of prices, are depressed at the present time, it is evident that this does not mean that, therefore, cotton prices are at a level which affords a compensation to the grower, which justifies such an extensive use of land and labor in its production.

The resolution outlining this inquiry also directed the commission to ascertain the respective quantities of linters and untenderable, unspinnable, and unmerchantable cotton. The last two mentioned

terms are, according to the trade, very loosely and inaccurately employed, and no satisfactory statistics of quantity are obtainable. In May, 1921, the Bureau of the Census reported the quantity of untenderable cotton in public storage in the United States at 970,230 bales, exclusive of linters, or 24 per cent of the holdings in such storage places. During the last four crop years the volume of linters produced ranged from 398,022 bales in 1921-22 to 929,516 in 1918-19.

The volume of cotton future trading, concerning which information was called for by the resolution, ranged during the last four crop years from about 104,500,000 bales in 1920-21 to about 124,500,000 bales in 1921-22. Very roughly stated, in 1918-19 the volume of future trading was 9 times the size of the crop; in 1919-20 nearly 11 times the crop; in 1920-21 something less than 8 times, and in 192122 something over 15 times.

In accordance with the resolution, inquiry was also made into the existing laws affecting the cotton trade. The cotton futures act of 1914 apparently has brought about a marked improvement in the methods of trading on future exchanges. The principal criticism from the cotton trade regarding it appears to be that the method of determining the commercial differences of spot cotton for use in settlements made by delivery has in some instances resulted in differences for the New York market which appeared to be artificial.

The cotton futures act, for the ordinary seller's option contract, grants the seller of a contract for future delivery of cotton the option of delivering any one or more of 10 grades, the money payment being adjusted to equalize the difference in value, and also the option as to the day of delivery in the delivery month. The commission believes that the effect of these options on the part of the seller, as distinguished from the buyer, is generally to make the futures price lower than it probably would be if corresponding buyer's option were used instead. The seller is given a right by law to determine under the contract both the time of delivery in the delivery month and the grade of cotton and no corresponding contract is provided for with options for the buyer, although provision is made for contracts for delivery of specific grades in the law (which latter provision is practically never used). While a balance between buyers and sellers with respect to value of grade contracted for and grade delivered under present methods may be made by a money payment, the element of quality of goods sold and the option of the seller to choose the qualities delivered may affect the future price.

While traders in futures under these seller's option contracts may be able to take care of themselves in this matter, and thus the situation may be equitable as between buyers and sellers of futures merely, the matter of fundamental importance is the relation between future prices and cash prices. Both in New Orleans and New York there is generally an absence of parity between daily spot prices reported to the Department of Agriculture and daily closing future prices as recorded by the exchange throughout the month of the maturity of the future contracts. This is not an entirely satisfactory basis of comparison; a better test would be the daily average spot quotation of middling upland cotton of average staple or quality and the daily average future quotation. In the last three years the future according to the best data now available, however, has been generally

lower. But a part of the difference may be due to differences in staple, etc., of the spot cotton compared with that which is delivered on future contracts. Such delivery-month discounts from whatever cause due, probably are reflected also in the general spread between cash and future prices in prior months. This situation, for the reason stated in the next paragraph, may have a tendency to affect unfavorably the prices received by producers of cotton.

Future prices made on the exchanges are more broadly disseminated than spot prices, partly because of the interest in them of a broadly distributed speculative public, and partly becuase the future price is more standardized or easier to describe adequately for commercial purposes. Spot prices are largely quoted on the basis of futures-i. e., so much on or off-and probably they are absolutely influenced by them to some extent. Competition may compel the local buyer to pay a better price than the futures seem to warrant, but the smalltown dealer is generally not so well informed as the large buyer of the actual character of the connection between spots and futures, and the producer may not fully appreciate the apparent tendency of the future prices to fall short of parity with spot prices. Under these conditions the price received by the producer who has actual cotton to sell in the spot market would logically seem to be unfavorably affected. Respectfully submitted."

PRELIMINARY REPORT ON THE COTTON TRADE.

INTRODUCTION.

This report is made pursuant to a resolution of the Senate of the United States, which directs the Federal Trade Commission to make inquiry into "the cause, or causes, of the present depressed price of cotton in the United States."

The report is preliminary in character and summarizes certain of the findings which will appear in greater detail in the final report. It aims to present the chief reasons for both the high prices of cotton in 1919-20 and the low prices in 1920-1922. In connection therewith consideration is given to production, stocks, consumption, imports, and exports. There is presented, also in response to the resolution, the available information regarding the quantities of linters untenderable and unspinnable cotton, contracts sold on the exchanges, and deliveries made on such contracts. The report does not attempt to present the methods and plans of operation of exchanges, these being reserved for the later report, though in so far as examined they do not appear to have been responsible for the low prices of cotton in 1920-1922; nor does this report attempt to consider the operation of present laws governing exchanges except incidentally in connection with the presentation of the cotton futures act. This and other legislation that has been proposed from time to time will be given fuller consideration in the later report.

MARKETING OF COTTON.

The bulk of the cotton of the United States is grown in and south of the tier of States extending from North Carolina to Oklahoma. In the southern area of this region cotton picking usually starts in July and in the northern area in August. By September, under, normal weather conditions, market receipts begin to be heavy.

The less-than-a-bale grower may accumulate his seed cotton until it is all picked, or, if in need of cash, he may dispose each day of the day's picking, in either case probably selling it to some larger near-by grower, who handles it with his own output. The planter producing more than a bale, yet not enough to operate a gin, will probably haul his cotton to a large planter or to a public ginner, who will gin the cotton at so much per bale, and may also buy the lint cotton and the seed.

The large producer may sell his cotton by sample direct from the plantation, but usually it is hauled to a neighboring town before its sale, where it is purchased by a storekeeper or by a representative of a cotton-buying firm. If the planter disposes of his cotton to the merchant, he may receive all or a part of his payment in trade. Often he has had supplies advanced to him during the year and is obligated to let the merchant have the cotton in settlement. If the producer is independent of the storekeeper, upon his arrival in the town with his baled cotton he generally exhibits samples to storekeepers and buyers with a view to obtaining competitive bids. Much of the cotton bought at the country town is shipped to compress points for