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of the crop of cotton from the producers to the ultimate consumers were to be impaired.

I think that is all I have to say, sir.

The CHAIRMAN. Mr. Marsh, the committee appreciates very much the patience with which you have submitted to this long and rather tedious examination, and is very much obliged to you.

Mr. MARSH. I am grateful for their patience.
Mr. NEVILLE. I would rather start to-morrow morning.
The CHAIRMAN. Then we will adjourn.

(Thereupon the committee at 4.30 p. m. adjourned until 10.30 a. m., Wednesday, February 16, 1910.)


Wednesday, February 16, 1910. The committee met at 11 o'clock a. m., Hon. Charles F. Scott (chairman) presiding.

The CHAIRMAN. Before the hearing proceeds this morning I should like to announce that it seems as if we can not protract this branch of our hearings beyond to-morrow. Friday, the 18th, has been set as the date for giving a hearing to representatives of the Council of North American Grain Dealers, who are coming here from Chicago and other cities, and who have written me that they are very anxious to have their hearings promptly in order that they may get away as soon as possible. With the close of to-morrow we will have given one entire week, with the exception of one day, to the cotton branch of the matter, and I think the committee feels as if the ground had been pretty well covered. We do not wish to unduly limit anybody in the matter of time, but we will request those who are yet to be heard to make their statements as concise as possible, and I will suggest to those who have questions to ask that, so far as may be, they limit their questions to such a form as will elicit direct information rather than lead to an argument or to controversy.

Mr. MANDLEBAUM. Do I understand you to say, Mr. Chairman, that the cotton part of this investigation is to be closed to-morrow?

The CHAIRMAN. That is the wish of the committee. Mr. Neville, I believe you would like to appear first this morning.

TESTIMONY OF MR. GEORGE W. NEVILLE. (The witness was sworn by the Chairman.) Mr. NEVILLE. Mr. Chairman, as this hearing has progressed it has seemed to me, judging from the questions asked by members of the committee, that the southern members, and when I say the southern members, I mean the members living in the cotton-producing states, are the only ones of the committee who are familiar with the process of marketing the crop by the producer, and it occurred to me that perhaps it might be of assistance to your committee for me to outline that in brief. I know that we have consumed a great deal of your time in making our statements, but it seems to me that that might be very essential to the matter, and with your permission I will do so.

The CHAIRMAN. That statement, briefly, I think will be interesting to the committee.

Mr. NEVILLE. I think I can make it in a brief way, so that the members can understand it. Mr. Chairman, I am glad to say that the high prices obtained by the producers of cotton these past several years and the diversification of crops in certain sections of the cotton-producing States have placed the southern farmer in financially a much stronger position than was his, say, ten years ago, with ... the result that the amount of acreage planted in cotton on money advanced by country merchants has diminished perceptibly, so that to-day I will say, on a rough estimate, perhaps 25 per cent of the cotton raised in the Southern States is raised on money furnished by country merchants to the small planter. There is another phase of it. Large landowners allow small farmers to plant so many, acres, and they are known as croppers. They, in turn, are supplied with provisions and material for raising the cotton by those landowners. There is another kind, the farmer who plants his own land; and he may have occasion to borrow money. o, is another, the man who is well enough off to plant his own crop without borrowing any money. The first three I have ... as a rule, sell their cotton to the country merchant; the first I mentioned because they have to, because the merchant has a lien on their crop and everything else they have. The second class do it because the merchants try to buy it for the trade there may be in the cotton when they pay cash for the cotton. In former times the larger planters always consigned their cotton to factors at the various ports. This entailed a large expense in marketing that crop, because in addition to the advances which they had to have in the spring of the year in order to plant their cotton, on which a commission was charged, a similar commission was charged for selling the cotton when it was marketed, and a commission was charged for all supplies bought and sent to the plantation. This has been gradually eliminated, until to-day in the leading southern ports, such as Norfolk, Wilmington, Charleston, Savannah, Mobile, New Orleans, and Galveston, what has been commonly known as the factor's business has decreased remarkably, due to two reasons, the first, as I have said, being the better financial condition of the farmer, and secondly, increased transportation facilities. That, I think, Mr. Chairman, covers the matter. So much has been said that I hardly know just where to start in my direct statement, and as I represent my firm of Weld & Neville, of Texas, in the handling of spot cotton, perhaps it would be better, for me to just jump right into the matter and describe the way in which we are willing to assist in the distribution of the cotton crop. The CHAIRMAN. Before you start your statement will you state, so that it may go into the record, the character of your business, and what your business connections are in the trade you personally handle? Mr. NEville. We are merchants engaged in the buying and selling of spot cotton to American spinners and to spinners of other countries, wherever American cotton is spun. The CHAIRMAN. Are you a member of the New York Cotton Exchange? Mr. NEville. Yes; I am a member of the New York Cotton Exchange and the New Orleans Cotton Exchange, and an associate member of the Liverpool Cotton Association. I will state to the committee, not in reply to your question, as perhaps it is necessary to do that in order to have the record clear, that when Japan is in the market buying cotton we do from 30 to 50 per cent of the exports to Japan, due to visits that I have made to that country with a view of seeing what their requirements were and how they handled the business.

This is an export country, Mr. Chairman. Roughly speaking, we export twice as much cotton as we consume in this country. The proportion used to be larger, but owing to the increase of spindles in this country, I am glad to say it is getting less. There are several things that seem to me important to put before this committee, one of which is that the spinner as a rule wants to buy cotton when the producer is not in position to sell it, and the producer wishes to sell it most when the spinner is apparently least interested in it. That is caused first on the part of the spinner because in the spring of the year and early summer he may have an opportunity of selling the product of his mill, covering a long period of delivery, through the jobber or wholesaler, and the prices he gets for those goods enable him to come to the merchant and make a contract for a specific quality of cotton which he requires in the manufacture of the product which he has sold. The merchant, to protect himself, could not do this business unless he had such facility as the future contracts of cotton, to buy to protect himself against the sale he had made to the spinner.

Then comes the marketing of the crop, when the farmer wishes to sell his product. The merchant having committed himself to the spinner, buys the farmer's cotton, and as he buys the farmer's cotton he sells the futures that he has bought as a hedge. The price the merchant pays the farmer is of no consequence to the merchant. The price is based entirely on the market value of the raw cotton, based on its supply and the demand. There are times in the marketing of the crop when the merchant has filled all of the sales he has made ahead to the spinner, the spinner has cotton to spin, and the farmer then wants to sell his cotton at a time when the spinner does not care to buy; and then the merchant comes in, and as he buys the spot cotton from the farmer he sells his contracts as a hedge against the spot cotton he has taken from the farmer at a time when the spinner is not buying.

At this point, gentlemen, I am ready to answer any questions you might want to ask.

The CHAIRMAN. Has the committee any questions? Mr. LEVER. I do not know that I quite catch the drift of Mr. Neville's argument. Let me ask him this question: When you buy the spot cotton as a merchant, you sell against it, on the exchange, futures as a hedge ? Mr. NEVILLE. Yes.

Mr. LEVER. Does not that put you in the attitude of a bear on the market? Mr. NEVILLE. Not at all. Mr. LEVER. Why not?

Mr. NEVILLE. Simply because I have bought something which I can not find any demand for from a consumer. If I did not have the facility of selling future contracts against that purchase, I would not

buy it; but there is the demand from some source for cotton at a price in the contract market. I buy the spot cotton and sell, and I satisfy that demand, and it does not put me in as a bear any more than the farmer who sold me the spots. Mr. LEvžE. But in order to make a contract you have got to have a purchaser? Mr. NEville. The purchaser is there. He is bidding for the cotton. Mr. LEver. He is bidding for the cotton. There is a contract entered into between you and the buyer of your hedge? Mr. NEville. Yes. Mr. LEveR. In order for you to make a profit out of your contract, it seems to me that the price of futures must break. Mr. NEville. Not at all. I have seen the market go up absolutely day by day when the spot cotton was being sold as hedges. Mr. Levee. What would be the effect if you had sold a hedge when the market was going up gradually? Mr. NEville. The value of my spot cotton was increasing as the market went up. Mr. LEveR. And the value of your hedges was decreasing as the market went up? Mr. NEville. Yes. Mr. LEveR. So that you had a stand-off? Mr. NEville. Where the value of my hedges was decreasing, and I was supposedly losing on my spot cotton. Mr. LEveR. What is the general situation with reference to that? Do the spots and hedges go up and down in a parity with each other? Mr. NEville. They do if the situation is a normal situation. Mr. LEveR. So that your hedging, then, is purely for the purpose | protecting yourselves and not for the purpose of making money out of it? Mr. NEville. My hedging is purely for the purpose of protecting myself against fluctuations in the commodity. Mr. LEveR. In the raw commodity? Mr. NEville. Yes; in the raw commodity. Mr. BEALL. When you buy cotton from the farmer for which you have no contract with the spinner, and sell your hedges in the future market, when you bring that down to its last analysis you are buying that cotton as a speculation, are you not? Mr. NEville. No, sir; I do not consider it so. Mr. BEALL. Well, you have not sold it? Mr. NEVILLE. No. Mr. BEALL. In advance? Mr. NEvillE. No. Mr. BEALL. And you do not know what the demand will be in the future for it? You do not know whether it will go up or go down? Mr. NEville. That is based on years of experience. Mr. BEALL. You buy it in the hope that when there comes a demand for it you will be able to sell it for a profit? Mr. NEville. No; we buy it knowing there is going to be a demand for cotton of that kind at some price. Mr. BEALL. And expecting to sell it at a profit? Mr. NEVILLE. Yes.

Mr. BEALL. You say that when conditions are normal in the price of spot cotton and the price of futures there is maintained a parity between them?

Mr. NEVILLE. I would not say that parity was fixed always.

Mr. BEALL. Take normal conditions; what is ordinarily the difference between the price of middling spot cotton and middling futures ? Which is the higher and which is the lower ?

Mr. NEVILLE. Very often the spot price is much lower than the future contract for the current month. Sometimes it is the reverse.

Mr. BEALL. That shows an abnormal condition, does it not?
Mr. NEVILLE. No; that shows a normal condition.

Mr. BEALL. Is it not a fact that where conditions are normal, the price of futures is a few points below the price of spots ?

Mr. NEVILLE. No, sir; that is an abnormal condition, when that happens. I am understanding you to refer to the price of spot cotton sales as compared to the futures in New York. My answer is predicated on that.

Mr. BEALL. Spot cotton in New York as compared to the price of futures in New York ?

Mr. NEVILLE. The price of spot cotton in New York is for evenrunning grades, and the price of contracts is the basis price, which takes in all the grades we deliver on contract.

Mr. BEALL. How does that price compare with the price of futures at New York?

Mr. NEVILLE. Sometimes it is higher, in normal years.
Mr. BEALL. About how much, under normal conditions ?

Mr. NEVILLE. Under normal conditions it runs from 25 to 35 points on contracts. Mr. BEALL. Twenty-five to 35 points ? Mr. NEVILLE. Yes. Mr. BEALL. What conditions must exist in order that the disparity between the two prices should become very much greater than 25 or 35 points, or much less than that?

Mr. NEVILLE. It depends upon the average quality of the crop, and the demand for the higher or lower grades being in excess of the supply.

Mr. BEALL. The demand for the grades lower or higher than middling cotton does exert an influence in fixing the price of those grades? Mr. NEVILLE. Yes.

Mr. BEALL. Do you think it should exert an influence in fixing those prices ? Mr. NEVILLE. Certainly. Mr. BEALL. Then you do not agree with Mr. Marsh, as I understood his statement to be that the price of those grades ought to be fixed by their value as a spinnable article ?

Mr. NEVILLE. We were speaking on two entirely different subjects, if you will excuse me. The line of questions you asked me is not the same that Mr. Marsh was on.

Mr. BEALL. I understood him to say that in fixing the price of cotton below middling, the difference between that price and the price of middling should be determined by the spinnable value. Mr. NEVILLE. Yes; I am in thorough sympathy with that, sir.

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