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Mr. Cone. No, sir; there is attached to this business speculation, as we all know, and you will find that there is speculation in almost all things that pertain to business.
Mr. Lever. Very well.
Mr. Cone. Whether it be real estate or whatever it is.
Mr. Lever. I will not pursue that line.
Mr. Bradford. Will the gentleman please explain briefly the difference between a contract that represents actual cotton and one that does not?
Mr. Cone. I do not know of a contract that does not represent actual cotton that is dealt in on any of the exchanges.
Mr. Bradford. I thought you said that January speculation did not represent actual cotton.
Mr. Cone. The way I should have said it, probably, is that there are speculators who never have any idea of buying or selling a bale of the real thing. But as I say, that is a matter that applies to almost anything. I have known men to buy real estate for a value far beyond anything they would be able to pay for it, and sell that real estate and make a good profit on it.
Mr. Bradford. Is it true or not that those contracts which you say represent the actual cotton and those which you say are purely speculative were all made on the same board and during the same day?
Mr. Cone. Pardon me, if I said there was a contract that does not represent actual cotton, I misstated what I was attempting to say. Every contract that is made represents actual cotton; but, to make myself clear, there are speculators.
Mr. Lever. Do they have a special contract?
Mr. Cone. No, sir; they have the same identical contract that I have.
Mr. Lever. What kind of a contract do those speculators enter into that does not call for actual delivery?
Mr. Cone. They enter into the same contract, but here is what they will do. The speculator will buy a contract; say he buys March or May cotton at 15 cents a pound, and the price two weeks from now is 15.50, showing him a profit of $250 on his 100 bales. He may sell it. Suppose, on the other hand, it goes down to the last of February, notice day. You have these cotton-exchange men here who can tell you better than I can how this thing is done. When notice day comes around, if that man does not want to take that cotton and notice is tendered, his broker will immediately—but Mr. Neville can explain that. Gentlemen, ask these cotton-exchange men. [Great laughter.] I am really answering questions that these cotton-exchange men ought to answer.
Mr. Nevolle. You are doing all right.
Mr. Cone. I know how it is, Dut I am trying to explain that which can be so much better explained by somebody else.
Mr. Heflin. In line with the question asked by Mr. Lever about the transaction on the exchange in cotton, I believe you said this morning that all these transactions were in cotton, that cotton was to be delivered?
Mr. Cone. All of which transactions?
Mr. Heflin. All contracts on the New York Cotton Exchange.
Mr. Cone. They all represent cotton; yes, sir.
Mr. Heflin. The only bill that was ever reported out of Congress, I believe, was the Hatch bill, and the report on that bill said that what the great body of producers of the United States now complain of is that this principle of delivering cotton is daily, hourly, and almost universally violated, pretending to enforce the delivery of the commodity sold, they have invented ways and means and methods to evade the plain provisions of their own laws and their own rules.
Mr. Neville. Mr. Cone is not acquainted with that business. You could get that information from him in a round about way, but the gentleman who will follow will give it to you much better.
Mr. Heflin. Very well.
Mr. Lever. We understood this morning that there had been an attempt to establish a future market exchange at Galveston which had failed as a future market exchange, but that there does exist there a kind of spot exchange. I want your judgment as to this question. Do you believe if we abolished future dealings in New York and in New Orleans there would not grow up throughout the cotton belt, at Galveston, Charleston, S. C, Wilmington, and Birmingham, and throughout the entire cotton belt, various spot-cotton exchanges which would give to the cotton trade all of the functions now given to it by the present system, without the evil of the present system?
Mr. Cone. Personally I do not think that those exchanges would ever amount to much. I believe if the exchanges were put out of business, the spot-cotton business would fall into the hands of such men as George H. McFadden & Bro., whose business is estimated now to be upward of 2,000,000 bales of cotton a year. It would fall into the hands of those men, and there are a number of other such dealers. There are some merchants that now handle upward of 500,000 bales of cotton, people that are able to gather information and to handle their business in large volume, systematically and most economically, making their business so large that the fixed charges would be lessened and at the same time making their business so large that they could kind of keep control of the situation, as the big mill corporations, of which there are some very large ones, and the big spot dealers, do. I believe that they would really control the situation.
Mr. Lever. And that these exchanges would not spring up?
Mr. Cone. I believe that in minor degree they would be there, but they would not amount to very much.
Mr. Lever. Very well; thank you.
Mr. Hughes, of Georgia. I wish to correct what seems to be an erroneous impression made upon the mind of Mr. Cone, Mr. Chairman, when you made the statement that you had received 200 letters on this subject in one day. Mr. Cone expressed his surprise at the indifference of the producer on this great question. I wish to say to Mr. Cone that I have never seen the producers of this country more interested in any subject ever presented to Congress than upon this important question, and if the Members of Congress were to answer all the letters that have been received on this question, they would have to double their office force and work fifteen hours a day.
The Chairman. Are there any further questions?
Mr. Burleson. No questions from here.
Mr. Cone. In reply to that I can refer you to what happened to the people in the time of the house of Pugges. I want to say that I would not have hesitated to answer the question of Mr. Lever as applying to the cotton exchanges, but what I would have Said will be said so much better by others, and you can get the information so much better from other gentlemen here who are thoroughly conversant with the subject.
The Chairman. I am quite sure that the committee understands that you had no wish to avoid or refuse to answer any question.
Mr. Lever. We understood that.
(At 4.30 o'clock p. m. the committee adjourned until to-morrow, Friday, February 11, 1910, at 10.30 o'clock a. m.)
Committee On Agriculture,
House Of Representatives, Washington, D. C, Friday, February 11, 1910.
The committee met at 10.30 o'clock a. m., Hon. Charles F. Scott b the chair.
Mr. Neville. Mr. Chairman, before you proceed with to-day's hearing I wish to correct in the record the remark I made in reply to Mr. Lever yesterday regarding the representative of the Commercial. After we left here yesterday afternoon I got to talking with my associates on the subject, and they stated that while I was away last summer he had made the correction that the supervisory committee asked for, and the paper was permitted to have a representative on the floor. I was not aware of that at the time I made my remark to Mr. Lever.
The Chairman. I am informed that Mr. Latham, of Greensboro, desires to be heard this morning. We are ready to hear Mr. Latham.
TESTIMONY OF MR. J. E. LATHAM, OF GREENSBORO, N. C.
(Mr. Latham was duly sworn by the chairman.)
The Chairman. Give your full name and your business connections to the reporter.
Mr. Latham. J. E. Latham, Greensboro, N. C. I am a cotton merchant, a cotton manufacturer, and a cotton farmer.
The Chairman. May I inquire, Mr. Latham, whether you would prefer to make your statement without interruption, and then have the committee ask questions afterwards?
Mr. Latham. There is nothing that I wish to address the committee upon; but I shall be very glad, indeed, to answer any questions that anyone may wish to ask upon this subject, and give you such information as I may have. I would therefore prefer to have asked such questions as gentlemen may desire to put.
The Chairman.- Have you any statement that you would like to volunteer in the beginning?
Mr. Latham. No, sir; I have not. I have not prepared anything on that line*
The Chairman. I believe you stated that you are a cotton broker, a manufacturer, and a grower?
Mr. Latham. Yes, sir.
The Chairman. Which one of those interests is the larger?
Mr. Latham. That of a cotton merchant.
The Chairman. Do you handle cotton on commission for the mc part, or do you purchase outright?
Mr. Latham. I purchase outright, principally. I do a very smi business in a commission way. That is usually done by agreement the time. I do not publish myself as a commission merchant. I a a dealer in cotton.
The Chairman. Do you buy from the farmer direct?
Mr. Latham. That is very rarely done where I am located no because I am not located in a section of country that produces cotti of any amount. I believe my county only produces about four five hundred bales; and that is produced on the edge of the count right among some mills, and the cotton is usually sold down there.
The Chairman. Then you buy from the smaller merchants in t smaller towns?
Mr. Latham. I buy from the merchants all over the South, and every State in the South.
The Chairman. What is your practice as regards hedging?
Mr. Latham. I find that the hedging of purchases or sales is a vei useful part of the business at times and frequently enters into it.
The Chairman. To what extent with regard to your purchases?
Mr. Latham. Do you mean as compared to the entire volume?
The Chairman. Yes.
Mr. Latham. That would be a very difficult question to answ offhand; but I should say that in the case of at least 75 per cent all the cotton that I handle I hedge a future against it on one side the other.
The Chairman. On what part of this 75 per cent would you s« that a hedge was of advantage to you, and on what part does it cau you a loss T
Mr. Latham. That is a part of the bookkeeping of the busine that I have never known of any dealer doing, and I have certain! never done it, because the business goes into the common mill. Tin is, I am either long or short, and I usually make my hedges to pr vent being long or short; and when I close out 100 bales of cotton i 500 bales of cotton or 1,000 bales of cotton it may not have ac reference to that particular hedge, and it may be melted at the san time into a relative transaction.
The Chairman. The reason I ask that question is because I have great many letters from millers who say that while they formerly di so, they have now abandoned the practice of hedging in the grai market, because they found that on account of the manipulationc the market they lost more frequently than they gained. I wondere whether the cotton merchants had had a similar experience, c whether their experience was the reverse of that.
Mr. Latham. I will venture the opinion, sir, that in the case of th cotton merchant that systematically hedges his purchases and sales and is sufficiently acquainted with the merits of the different hedgin markets of the world (which are New York, New Orleans, and Livei pool), the hedging market ought to be of advantage to him.
The Chairman. May I inquire if you deal on the exchanges in an; other way than for the purpose of hedging?
Mr. Latham. Do you mean in a speculative way?
The Chairman. Yes.
Mr. Latham. Yes; I have speculated in cotton.
£ J The Chairman. In that practice do you execute a contract which
The Chairman. The contract is precisely the same as you make in
'.'- on or business experience, why the cotton trade should have a
i ture contract, that does not also apply to the hay trade or the wool
;' ade or the iron trade?
: Mr. Latham. I think I might suggest some reason for that. In the 'st place, we make here in America practically the cotton product of
:. le world. We make a large part oi it, at any rate. We make such large proportion of it that 65 or 70 per cent of all we produce here i the United States is sent out of the country; it is not consumed
T ere in the United States. . It goes out; and the foreign countries ave cotton exchanges that deal in futures. That seems to be one n, at least, why we should have cotton exchanges. But another ason is this: I remember that you asked the same question in relan to hay of one of the witnesses you had here before you yesterday. y does not change its nature in any respect, but when it is sent up the market it goes to the horse or to the bull yearling, as the case iv be. But cotton does not. A manufacturer buys 100 bales of tton or 1,000 bales of cotton or 10,000 bales of cotton, according to e size of his plant, and on account of its being seasonable goods it necessary for him to manufacture that cotton in the spring of the ear to sell next winter; and then, again, he manufactures in the ter time to sell the following summer. The seasons reverse themlves. Another reason is that there are so many different kinds of
lotton. Cotton is cotton to the ordinary mind; but there are great
differences between the various grades of cotton to people that are
iiformed. The gentlemen here from Texas will particularly bear me ut in that, because they know the difference between the length of he fibers and the strength of the fibers and things of that kind, more than the ordinary man does.
'The Chairman. And yet, when the cotton is purchased by the mill .it is always bought on sample, is it not?
Mr. Latham. No, sir; it is not always bought on sample. In fact, I do not suppose 5 per cent of the cotton that the mills buy is bought on sample.
The Chairman. The mills buy without knowing what they are going to get, do they?
Mr. Latham. No, sir; they do not. They buy on description, and they buy from good, responsible dealers usually.
Mr. Burleson. They do not have the sample, but they indicate the ?rade.
Mr. Latham. That is buying on description.
The Chairman. The description is equivalent to the sample?
Mr. Latham. Yes, sir. To further explain my idea, suppose that a mill is using full inch and an eighth hard staple cotton. It would he runious to the product of that mill to place in it the ordinary upland cotton that we get from Georgia or from Carolina, where I