Mr. NEVILLE. Yes. Mr. BEALL. You fixed that difference at 50 points off? Mr. NEVILLE. Yes. Mr. BEALL. That was on the 21st of November? Mr. NEVILLE. Yes. Mr. BEALL. What was the commercial difference between those two grades of cotten in New York? Mr. NEVILLE. Fifty points. Mr. BEALL. Within thirty days after that time? Mr. NEVILLE. Fifty points. Mr. BEALL. It stood at 50 points? Mr. NEVILLE. Yes. Mr. BEALL. It never did vary? Mr. NEVILLE. No, sir. Mr. BEALL. But the relative values of those two grades of cotton throughout the country at large did vary? Mr. NEVILLE. Well, it depends altogether on what construction you place on "relative value." If you take a panic value and call that a relative value, yes. Mr. BEALL. Was that a panic value? Mr. NEVILLE. Sure. Mr. BEALL. Throughout the balance of the world? Mr. NEVILLE. Sure; just as there was in 1907. Mr. BEALL. Then there was a panic value throughout the balance of the world, but no panic value in New York? Mr. NEVILLE. I explained that in my opening statement, giving you what I thought were the three reasons that affected the low-grade crop that year. Mr. BEALL. There are some suggestions in this report that I would be glad for you to give your opinion upon, as to how it happened that this revision committee fixed these arbitrary conditions on the 21st of November. The statement is made that it has been frequently charged that the members of that committee had a personal interest in the matter. Do you think that there is any justice in that charge? Mr. NEVILLE. No, I do not think there is any justification for that charge. Mr. BEALL. You will agree that they were in position to profit by any error that was made? Mr. NEVILLE. No, I will not assent to that. Not knowing their minds and their position I could not subscribe to that. Mr. BEALL. You do not know, then, whether they actually did make a profit. Mr. NEVILLE. No, sir. Mr. BEALL. Well, the statement is made in this report, first, that they were in position, by reason of their attitude toward the market, to make this profit, and that as a result of fixing the grades upon the basis they did, many of them make an enormous profit. Mr. NEVILLE. I have no means of testifying on that question. Mr. BEALL. Do you not think it is rather a bad situation when 17 men are called upon, even with the limitations that are imposed by your rules, to fix these differences in value, when many of them may be in position to profit by an improper fixing of value, and when as a result of a mistake many of them may make an enormous profit? Mr. NEVILLE. Mr. Chairman, I can only answer that question in this way, that men are called at times to serve on committees when the ones to serve, and who know most about it, can not help but have an interest in what they are called to consider; and under those circumstances an honest man does the best he can, tries to put aside his personal interest, and it is up to that man to put aside his personal interest. Personally, I do not agree with any of the systems in vogue to-day in any exchange, whether it is an exchange that trades in cotton contracts, or whether it is an exchange that trades in spots and to a certain extent in future contracts in spot cotton. I believe the more equitable way is to establish a spinning value based on the grades as near as it can be, and when it can not be done absolutely, yet even to the extent to which it can be done it is more accurate and it is more fair to the producer, than the method which Mr. Beall has been describing as existing in the South and all over the country in the season of 1906. The CHAIRMAN. Let me ask you right there, would you think it practicable to establish such a spinning value that should be permanent, lasting from year to year, or would you have a spinning value established for each crop? Mr. NEVILLE. Mr. Chairman, several very well informed manufacturers have given us their inside figures, the result of years of tests, and they tell us that for commercial purposes the quality of the crop, except in a disastrous year where you have a drought followed by a rain that makes a staple what is known as perished— after the cotton matures you know it is light, and then if you have a rain, that causes it to waste-they say with those exceptions those qualities can be arrived at, and one year would be a criterion for another; but the point I am making is, and I hope, Mr. Beall, I will be able to make myself clear here, with middling cotton at 8 cents a pound and low middling cotton worth to a spinner 6 per cent less, that would make low middling cotton worth 48 points off, less than half a cent; but under the commercial system, gentlemen, that cotton could be valued according to supply and demand at the time, at 13 cents off, which was the maximum off middling for low middling in the season of 1906-7. Now, what happens? On every bale of low middling cotton that the farmer has for sale he has to take nearly $5 a bale less than the cotton is worth to a spinner. You may say that the law of supply and demand should govern that. To a certain extent I acknowledge that argument. But, gentlemen, if it is taken at the commercial value based on supply and demand, just so sure as the sun shines to-day and you are sitting here, before that next crop begins to move, the man that bought that cotton gets $5 a bale, and the farmer, because under the necessities of the situation he is compelled to sell or gets scared because there is so much of it and does not use his discretion, loses; and were it not for the New York contract, in 1906-7 there is no telling where low grade cotton would have gone to in the commercial differences. Mr. BEALL. At the time you fixed that difference at 50 points off, the commercial difference at New Orleans was 113 off? Mr. NEVILLE. That is 1. Mr. BEALL. 1? Mr. NEVILLE. Yes. You are reading from what I suppose to be accurate statistics. I never can carry statistics in my head. Mr. BEALL. At the time of the revision made by the New York Cotton Exchange in November, 1906, in New Orleans, the most important spot market, the low middling difference was 1.13 off? Mr. NEVILLE. Yes. Mr. BEALL (reading): Instead of basing its revision on the rates in the great markets of the country and the average of 113 points for the- with the markets above mentioned would be a much fairer basis. Mr. NEVILLE. Right there I want to take issue with Mr. Herbert Knox Smith's suggestion as to the method of arriving at differences to be fixed in the New York Cotton Exchange. Gentlemen, the basis of classification is middling, yet there are as many varieties of middling cotton, white, in the United States, I was going to say as there are different grades of cotton. Middling cotton in New York is not middling in Savannah, or middling cotton in Charleston or middling cotton in Augusta or middling cotton in New Orleans, nor is it middling anywhere else; nor is middling in those markets middling anywhere else; and how is it physically possible to take the quoted differences in name only and make an average to suit the market, where they have the same names but not the same grades for the same names? Mr. BEALL. This difference of 50 points which you did fix was made to apply to all low middling cotton? Mr. NEVILLE. It was made to apply to low middling cotton that was delivered on contract in New York. Mr. BEALL. As a matter of fact, did it not exert an influence upon low middling cotton everywhere else as well as in New York? Mr. NEVILLE. No, sir; I can not see it that way. Mr. BEALL. Does the price of low middling cotton in New York have no influence upon the price of low middling cotton anywhere else than in New York? Mr. NEVILLE. It did not seem to in that year. It seemed to come to New York to deliver on contract. It did not go anywhere else to deliver on contract. Mr. BEALL. It came to New York for delivery on contract for the reason that you estimated a difference of only 50 points off? Mr. NEVILLE. Yes. Mr. BEALL. While throughout the balance of the world, or throughout the balance of the United States, perhaps I should say, there was an actual difference far in excess of that? Mr. NEVILLE. Mr. Beall Mr. BEALL. Was not that the reason that it came to New York? Mr. NEVILLE. No, sir. Mr. BEALL. Why did it come there? Mr. NEVILLE. It came to New York because the producers were able to get more money for it in New York than they could get anywhere else. Mr. BEALL. Were they not able to get more money for it in New York because you did not properly fix the differences? Mr. NEVILLE. No, sir; I will not subscribe to that. There was a demand for cotton at that price in New York which enabled them to deliver those low grades at that price. Mr. BEALL. If you had fixed a difference of 1 cent, would as much cotton have come to New York as did come? Mr. NEVILLE. I dare say it would. Mr. BEALL. If you had fixed the difference at what the actual difference was throughout the country at that time, would that have had a tendency to bring as much cotton to New York as did come? Mr. NEVILLE. I expect it would, because then the basis price of your contract would have been a little higher than it was. Mr. BEALL. What was the highest difference between middling and low middling throughout the country during that season? Mr. NEVILLE. I could not answer without looking at the records. Mr. BEALL. About what? Mr. NEVILLE. I should think about 13 cents. Mr. BEALL. If you had fixed then the difference at 13 cents, would there still as much cotton have come to New York as did come? Mr. NEVILLE. Yes, sir; I believe it would. Mr. BEALL. If you, instead of making the mistake of not establishing a sufficient difference between the two grades, had gone to the other extreme and had established a difference greater than the difference throughout the country, would there still have come to New York as much cotton, in your judgment? Mr. NEVILLE. That is a very hard question to answer, because there are too many "ifs" in there. I can not answer that kind of questions. Mr. BEALL. You had to take into consideration a good many "ifs" when you fixed the differences, did you not? Mr. NEVILLE. No, sir; we did not. Mr. BEALL. Should not your committee have taken into consideration a good many "ifs" when you fixed the differences? Mr. NEVILLE. That is a debatable question. I should say that they did not have to. Mr. BEALL. You admit that there was a mistake made in fixing the differences? Mr. NEVILLE. I think so. Mr. BEALL. Your judgment is that by reason of that mistake no more cotton was sent to New York than would have come if there had been no mistake? Mr. NEVILLE. No; I think the New York market was the only market that took the low-grade cotton at anything like the value. Mr. LEVER. You have answered that this movement of low-grade cotton in 1906 was not due to the fixed difference system? Was there any reason for this large demand for low-grade cotton in New York at that time? Mr. NEVILLE. There was a demand for basis contracts there. Mr. NEVILLE. The New York market was the only market for it. Mr. LEVER. What special reason was there for this demand? Mr. NEVILLE. It was a merchant's proposition. They were willing to buy it. Mr. LEVER. They were willing to buy it? Mr. NEVILLE. Yes. Mr. LEVER. They were willing to sell it? Mr. NEVILLE. Yes; they sold it afterwards. You may be wearing a shirt made from some of that cotton, for all I know. I sold some of it to a mill that makes stuff for shirts. Mr. LEVER. I was only asking to know if you fixed differences for the low grade in New York, and there was no demand for this lowgrade cotton throughout the country, why there should be a special demand for it in New York. Mr. NEVILLE. Strictly because there was a merchant's demand for it; they were willing to take it. Mr. LEVER. In other words, I was trying to bring out this point: Why was it that the merchants of New York wanted a special grade of cotton that no one else in all the country wanted? Mr. NEVILLE. They had a little better foresight than the other merchants. Mr. MANDLEBAUM. May I ask one question, Mr. Chairman? The CHAIRMAN. Yes. Mr. MANDLEBAUM. You have stated that in some of the markets the differences quoted as between low middling and middling were as much as 13 cents. Did that represent the actual selling value of low middling in those markets? Mr. NEVILLE. I do not think it did. Mr. MANDLEBAUM. Did you not try to buy low middling in New Orleans at the published differences? Mr. NEVILLE. I did. Mr. MANDLEBAUM. And how much could you buy? Mr. NEVILLE. Not a bale. Mr. BEALL. Why could you not buy it? Mr. NEVILLE. They told me they could not buy it. It was not for sale at that price. Mr. BEALL. Because they could get more for it in New York? I know I offered them a cent a pound off low middling, when it was quoted at 13, and they told me they could not get it at that price. Mr. BEALL. You said that ordinarily the difference between futures and spots on the New York market was 25 to 30 points, I understand. Mr. NEVILLE. Yes. Mr. BEALL. During that season of 1906-7, what was the maximum difference between spots and futures on the New York market? Mr. NEVILLE. As I said before, gentlemen, I am not a very good hand for carrying figures in my mind. You have the report there. Mr. BEALL. It is somewhere here. I do not know just where to find it now. I do not profess to know very much about the cotton trade, and I may get figures confused. Mr. NEVILLE. I could not answer as to the exact number of points, but it is in Mr. Smith's report. That is authoritative on that particular point. I am willing to let whatever there is there stand as my answer. Mr. BEALL. I am under the impression that there was a difference somewhere of 198. Mr. NEVILLE. I think so. Mr. BEALL. But I was not sure whether that applied to New York or not. Mr. NEVILLE. Yes. Mr. BEALL. If that is a fact, if the normal difference is 25 or 35, and through some influence that difference was increased to 198Mr. NEVILLE. Yes. |