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or New Orleans exchange had to deliver white spinnable cotton on those contracts upon demand, they would not dare to have the fluctuations they have. But when the market can be depressed within a week a hundred points in the face of a supply, then it becomes such a fascinating game that these men from the South know that up to the time that the bucket shops and illegitimate wire houses were driven out they were crowded from day to day, and got not simply commissions, but the margins put up to make purchases. Then, when the market got too low, is it not a common expressiondo you not know it, and do I not know it—that “a reaction is due ?"

Mr. LATHAM. Yes.

Senator Smith. Why, certainly. “We have cleaned them up going down; now let us start them back, and get them going and coming.” Is not that so?

Mr. LATHAM. But, Senator, could not a man clean himself up ?

Senator SMITH. Why, I am not here to speak of the morals of the people. Did not the United States Government put its hands on the Louisiana lottery, and say: "You can not put up a fascinating game to clean the country up through the unfortunate disposition of mankind to gamble?” And what we are doing in this committee is to try to prove that the gambling aspect of dealing in cotton has superseded and overshadowed and submerged the legitimate business, and we are going to stop it.

The CHAIRMAN. Mr. Latham, of course the particular purpose of this inquiry is to get the opinion of men engaged in the cotton business as to the legitimacy and the necessity of the future market. I do not care to protract your examination unduly; and to get your opinion, if I may, in a nutshell, I should like to inquire if I am right in understanding you to say this: That in your judgment, if futures were eliminated the cotton spinner could readily adapt himself to the change of conditions, and the cotton brokerage business would suffer no particular change except, perhaps, to shift the business from the smaller to the larger dealer, and that the chief burden of the change in the way of financial loss would fall upon the growers? Do I state your position accurately?

Mr. LATHAM. I think that it would fall more largely upon the grower than upon anyone else, because I think the others could adjust themselves to it. It would disarrange the present buying business of the country—there is no doubt about that-by eliminating a great many of the small people.

The CHAIRMAN. Has any member of the committee any further questions?

Mr. Cocks. I should like to ask Mr. Latham a question. Mr. Latham, you spoke about the difference between hay and cottonthat is, you assumed that we all think that'cotton is cotton." From your remarks it might be inferred that “hay is hay;” that there is no difference in the grades, and that it is not just as liable to vary in grade as cotton. Is that the idea ?

Mr. LATHAM. My idea in bringing up that remark was this: Suppose you take a mill that spins a specialty in cotton. There are some days when it can make a contract which would be desirable on the known relation of what other cotton is fetching, and what that class of product would be bringing. The manufacturer knows it is desirable to enter into that contract. But simultaneously he can not go

out and secure his exact needs for his mill. As I illustrated it a while ago, he might want full inch-and-an-eighth bender cotton, and at times I have been unable to buy that cotton for a period of two or three days at a time. We could not get it offered at any price. If the mill were to go ahead and sell its product for twelve months ahead of time without having the cotton in sight, or having it secured, at any rate, it would be undertaking a speculation which men of good business acumen would say was too far away for the mill to go.

Mr. Cocks. But there would be no reason why the mill man could not have that cotton in the warehouse though?

Mr. LATHAM. Are you going to have it in the warehouse in advance of the seHing of the goods ?

Mr. Cocks. Yes; certainly.

Mr. LATHAM. Then you would have the mill speculating on a perfectly tremendous volume of cotton, which might also break you. There is danger at both ends.

Mr. Cocks. If a man has to deliver a cargo of prime timothy hay on the 1st day of next June the only way for him to be sure of doing it is to buy that hay and warehouse it, unless he can contract for it with some person that he considers responsible.

Mr. LATHAM. That is all so, but you can buy a cargo of prime timothy hay a great deal easier than you can buy a thousand bales of inch-and-an-eighth full bender cotton.

Mr. Cocks. Of course I can not go into that, because I do not know about it, but I know that sometimes the market is bare of prime timothy hay, in case a man wants to get it to fill a large order, and I assumed one was as hard or as easy to get as the other on short notice.

Mr. LATHAM. But here is a mill that does contract (as I have known mills to contract) at least eighteen months ahead. They get to running on some specialty that is found to be salable, and they can make a contract with some dry goods jobber who takes from them all they can make for a specified time-eighteen months in that case.

Mr. Cocks. Is not that true of the iron trade? Do not the railroads contract for iron to be delivered a long way ahead ?

Mr. LATHAM. I know that in order to get structural material you have to contract for it; but how far ahead those contracts go I do not know. But I can tell you this: I believe I am not misinformed when I tell you that the man that sells you the iron owns 75 per cent of the product that comes out of the mines.

The CHAIRMAN. But there are iron factories which own no mines, but that still make contracts a long way ahead.

Mr. LATHAM. Yes, sir; I will admit that. But in the case of the great bulk of iron business, the men own the mines as well as they own the ore on the lakes, and they own the steamships that haul it, and they own everything all along. Therefore, if they sell something short, they are selling what they have, and not what the other fellow

The CHAIRMAN. Are there any further questions? Mr. LATHAM. And if they accumulate them, they are dealing with their own goods and not with another fellow's.

The CHAIRMAN. Are there any other questions? Mr. LEVER. Mr. Latham, coming back to the effect of futures upon spots, I should like to call your attention to the following

has.

statement in one of the commercial papers of New York, printed this morning:

The New York spot market was quiet, with 5 points advance. Middling was quoted at 14.25 cents. A year ago the price was 9.85 cents. Sales, 3,260 bales.

I understood you to say, in answer to Mr. Sims's question, that that quotation was posted at 2 o'clock in the day?

Mr. LATHAM. Yes, sir. Pardon me, Mr. Chairman; I think that is the exact hour. It is about that.

Several GENTLEMEN. That is it.
Mr. LEVER. Well, about that ?
Mr. LATHAM. Yes, sir; that is the regular time.

Mr. LEVER. Now, I want to ask you, as a matter of reason and as a matter of fact, whether that quotation would have any effect whatever upon the price of spot cotton during that day?

Mr. LATHAM. Will you repeat that question, sir ?

Mr. LEVER. I want to know whether the quotation of spots upon the New York Cotton Exchange yesterday at 14.25, with a sale of 3,260 bales, had any effect whatever upon the price of spot cotton in the South ?

The CHAIRMAN. That same day?
Mr. LEVER. That same day.
Mr. LATHAM. I should think it would; yes, sir.

Mr. LEVER. How could it possibly have any effect upon the price of cotton from 9 o'clock in the morning until 2, when the posting was made ?

Mr. LATHAM. Of course it could not anticipate it.

Mr. MENDELBAUM. May I make one remark in connection with that question ?

Mr. LEVER. Yes; I shall be very glad to have you answer that.

Mr. MENDELBAUM. The posting of the quotation is simply the statement that cotton during that day sold at that price. The posting does not make the price. The posting is simply the evidence of the fact that cotton has sold at that price.

Mr. LEVER. You post futures, however, Mr. Mendelbaum ?

Mr. MENDELBAUM. Yes, sir; but the posting of the price does not make the price. The posting is simply the evidence of the fact that cotton sold at that price up to that time. It is so in New Orleans, and it is in all the spot markets in the South, and it is so in Liverpool.

Mr. LEVER. Now, just one moment: You post your futures every five or ten minutes, or every one or two or three or four or five minutes; do you not?

Mr. MENDELBAUM. I do not understand you.

Mr. LEVER. I say, you post the price of futures every one or two three or four or five minutes, do you not?

Mr. MENDELBAUM. Every sale; every transaction.

Mr. LEVER. And those sales sometimes take place half a dozen in a minute ?

Mr. MENDELBAUM. Oh, sometimes half a dozen in one minute.
Mr. LEVER. Yes; half a dozen in one minute—that is what I say.
Mr. MENDELBAUM. Yes, sir.

Mr. LEVER. But you do not post your spots until 2 o'clock in the day?

Mr. MENDELBAUM. No, sir. The specific sales of spots are not counted until half an hour before that time.

Mr. LEVER. That being the case, I want to ask Mr. Latham, coming back to his question (because I know he wants to put himself on this record in the correct position), if the effect of the quotations of spot cotton on the New York Exchange has any effect whatever on the price of spot cotton in the South from 9 o'clock in the morning until 2 o'clock in the afternoon, when the majority of the business is done?

Mr. LATHAM. Mr. Chairman, I do not think it is fair to ask me that question, because that would be anticipating the time. Some one would have to know in the South, or I would have to know, what the quotation at 2 o'clock was going to be in order to answer that. Therefore I must ask the gentleman to withdraw that question. I do not think it is a fair question.

Mr. LEVER. Mr. Chairman, I submit that the question is a fair question; because I am endeavoring to bring out from Mr. Latham whether the spot quotations on the New York and New Orleans exchanges control the spot prices, or whether the futures do it.

A GENTLEMAN. It is the same thing.

The CHAIRMAN. I presume Mr. Latham would have no difficulty in saying that a buyer in Greensboro could not be influenced by a quotation that he had not received. That is really the purport of the question.

Mr. LATHAM. That would really answer his question, sir.

Mr. LEVER. That really answers my question. Now, then, if you are not governed by a quotation which you would have to anticipate and which you do not know, what are you governed by in your trading on cotton from 9 o'clock in the morning until 2 in the day?

Mr. LATHAM. We are governed by the spot quotations as published in New York and New Orleans at 2 o'clock every day for the following morning. We also receive every morning a cable from Liverpool, about half past 8 o'clock, which gives the opening market there in practically the biggest spot market in the world. That is the biggest spinners' market. It is surrounded by spinners. We get that news from Liverpool, which gives the price at which spinners can buy cotton on the spot, or at which they can buy cotton for delivery in any one of the months, running up for eight or ten months ahead. We use that along up until 10 o'clock, if any business offers.

Mr. LEVER. Then what do you do?

Mr. LATHAM. We continue to get that until 11 o'clock, eastern time, here.

Mr. LEVER. And then what?

Mr. LATHAM. At 10 o'clock we commence to get the New York and New Orleans market quotations, telling what buyers and sellers

Mr. BURLESON. Quotations on futures, you mean?
Mr. LATHAM. Yes, sir.
Mr. LEVER. Future markets?
Mr. LATHAM. Yes, sir.

Mr. LEVER. And then you are governed by the future quotations during the balance of the day?

Mr. LATHAM. Yes, sir. Mr. LEVER. Now, just one other question: I should like you to give the committee your idea of the value of hedging as it affects both the spinner of cotton and the producer of cotton.

Mr. LATHAM. I think the ability of the spinner to hedge enables him to place his contracts forward for a longer time than he would be able to do if he were unable to hedge; and it makes his business much safer. For instance, we will illustrate by the case of a little mill. Suppose a little mill uses 500 bales of cotton a month. That is not a large mill, as you gentlemen know. But 500 bales of cotton at the present time is worth $40,000. Suppose the mill man should have an opportunity to contract the product of his mill for ten months ahead, which I believe even the people who are opposed to trading in futures in cotton would not believe was "...". is, for a cotton mill to sell what the mill could make for ten months ahead. They admit that we could do that. You would say: “He must go into the market at once and buy his cotton.” I happen to live down in a community. where money is not so abundant as that. It would take $400,000 in clear cash to pay for enough cotton to run that mill for ten months, and to enable it to oš hedge itself. In addition to that, there might be times when we would be running out of scarcity into promised abundance. For instance, that contract might be offered some time in the month of July, we will say, this year; and everybody knows that cotton this year is scarce, because we have made a mighty short crop. But we also look over to the next crop, and we see that there is a promise of a large planting in the South; and in anticipation of that cotton is selling lower than it was selling in the summer time. Therefore, it would probably not be good business for that mill to go into the market and buy that $400,000 worth of cotton in anticipation, when they see lower prices robably ahead; and, in addition to that, they could not finance it. }. (coming directly to your question) if the mill man is permitted to hedge, it would not cost him a great sight of money to put up his margin even if he had to put up any margin at all, to make his hedge—and he might not have to put up any margin at all; and he could go ahead . buy the option. He might buy 200 bales of March cotton, 200 bales of May cotton, 200 bales of July cotton, and 200 bales of August cotton, which would cover his eight or ten months' supply of cotton; and he would take up that cotton as it came along and spin it. Mr. LEVER. Let me state a case, and see if I get clearly in my own mind the method of hedging. A cotton-mill man in North Carolina buys 500 bales of spot cotton in Greensboro for his mill? Mr. LATHAM. Yes, sir. Mr. LEveR. He immediately telegraphs his broker in New York to sell him 500 bales of Julys, in order to protect him, “hedge” him, against his purchase ? Is that correct? Mr. LATHAM. That might be so in some cases. It is not so in every Case. Mr. LEVER. That is ordinarily so, though; is it not? Mr. LATHAM. It is frequently so. Mr. LEVER. It is frequently so. Is not this the effect that follows from that: That your system of hedging thereby makes your mill man a natural bear upon the market and a natural depressing agent upon cotton 7 Mr. LATHAM. I do not assent to that, sir, for this reason: Inasmuch as he has already bought so that he may sell, thereby making a hedge, the man that he bought the cotton from was the natural depresser of the price, whether he was a dealer or whether he bought it from the

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