But they put on the same certificate every grade that could be found in the market which was liable to be delivered under their contract. Why? (This is said with all deference to my friends.) It is done in order to, as we say, "scare" the man away from the delivery. It is done so that he will not take up a delivery, but will run away from it rather than take up the cotton.

Mr. BURLESON. If he has bought, it is done to make him sell? Mr. PARKER. That is what he wants to do. If I take the cotton, he wants to make me have to turn it right back on the exchange. Mr. BURLESON. Did you ever look at any of the cotton?

Mr. PARKER. I am going to tell you. In 1907, I think it was, or 1908-anyhow, within the last five years-futures were so low, and I wanted spot cotton and needed it in my business so badly, that it looked to me to be just the very thing to go up there and see if I could not get some cotton in New York and ship it back to South Carolina again. Mr. Theodore H. Price had just taken up 10,000 bales of cotton. He asked me to come up there and see it. I went through the 10,000 bales he had taken up. He was very anxious to ship it out, to get rid of it. And while I recognize and say in justice to my friends that that particular condition has been in a measure rectified since, at that time I was offered cotton which no spinner in the world could have spun. My friends will say: "Well, it went out; it went into consumption.' Yes; it went into consumption, like stuffing horse collars and doing things of that character. It did not go into legitimate consumption as spun cotton. And the effect of having that class of cotton up there, kept over there year after year and month after month, delivered one time and redelivered back on the Exchange, was to scare the legitimate dealer and the legitimate spinner away from delivery on the New York Cotton Exchange. Therefore the effect of it necessarily would be to depress futures in contrast with spots. That particular season futures were selling at more than 2 cents under the price of middling cotton from the South. I say that that condition is brought about by illegitimate conditions on the New York Exchange, which we as spinners, North and South, have repeatedly asked to have corrected, and have not been able to secure it. It affects our business disastrously, and therefore we say we are justified in asking for its correction here.

Mr. LEVER. What is the relative position of New York as a spot market as compared to New Orleans?

Mr. PARKER. New York is not (I suppose I may use the expression) a legitimate spot market. In other words, the only character of cotton which goes to New York is that cotton which, as a rule (of course there are exceptions to a general statement), is sent there with a view of delivery on contracts. Take, for instance, the last part of December and the early part of January, when cotton rose to 16 cents in futures. That was above the parity of spots. Therefore a dealer in the South would ship cotton to New York and deliver it on the contracts, because he could get more that way than he could by selling it to the spinner in the South or to the spinner in the East. He could get more from delivery on contracts. But practically the New York stock of cotton represents this cotton kept in that way for delivery from time to time on contracts. You will readily recognize that as a rule-this year has been the exception-it is the undesirable cotton which is so delivered. It is the class of cotton which there is no other demand for.

Mr. BURLESON. The "overs" and mixed lots?

Mr. PARKER. The "overs" and mixed lots, or the extremely high grades, which are just as bad as the extremely low grades.

Mr. NEVILLE. You spoke of cotton which you got from New York in January, 1908-was that the date?

Mr. PARKER. No; January, 1909.

Mr. NEVILLE. Well, you mentioned it some time before as being in January, 1908.

Mr. PARKER. No; the delivery in January was 1909. The time I referred to in connection with Mr. Price's cotton was either 1907 or 1908.

Mr. NEVILLE. What was the average grade of the total crop in 1906-7 and 1907-8?

Mr. PARKER. I am trying to fix the different years. In 1907, my recollection is, it was a very low grade.

Mr. NEVILLE. That is the year you had the storm in September which ruined the grade, where you could not get telegraphic communication with the South for a week.

Mr. PARKER. That is right.

Mr. NEVILLE. That was a very low-grade crop?

Mr. PARKER. That was a very low-grade crop.

Mr. NEVILLE. One minute, please. So that by Christmas, 1906, strict and good middling cotton did not exist except in the hands of dealers who had bought it and held it as merchandise?

Mr. PARKER. I would not state it quite so generally as that.
Mr. NEVILLE. Well, approximately?

Mr. PARKER. I would say that the supply of the high-grade cotton was very much less than the demand for it-very much less than usual. Mr. NEVILLE. Very much less than usual?

Mr. PARKER. Yes.

Mr. NEVILLE. To get right back to the firm you mentioned that failed, I was fearful that the committee might think that the particular transaction you mentioned caused that firm to fail.

Mr. PARKER. No; it was not big enough for that-only 5,000 bales. Mr. NEVILLE. I understood that, but I was afraid the committee might think So, the way the matter was left; and I do not want them to think that you left it that way intentionally.

Mr. PARKER. No.

Mr. NEVILLE. We are only discussing this thing in a calm way. Mr. PARKER. Yes.

Mr. HOWELL. Before you resume your statement, let me ask what futures you deal in in cotton?

Mr. PARKER. What futures?

Mr. HOWELL. Yes.

Mr. PARKER. Suppose I want cotton for delivery in June-I buy June cotton. If I want it delivered to me in July, I buy July cotton. Ordinarily, when I speak of disparity, though, I mean the current month, with the current prices of cotton that day.

Mr. HOWELL. I have reference to the New York Cotton Exchange. You can buy cotton for delivery in any month of the year?

Mr. PARKER. Oh, you can buy it for a year or more ahead; yes, sir. The fact is I have bought cotton in Liverpool for eighteen months ahead.

Mr. NEVILLE. Right there, if you will allow me, you can only buy it in New York eleven months ahead.

Mr. PARKER. Eleven months ahead? Well, I will accept that correction. I thought it was a little bit over a year. Mr. Neville says it is little bit less than a year. But in Liverpool I am correct in saying that you can buy it two years ahead.

Now, to come back, gentlemen: The effect of the action of the exchange is to give every option to the seller; and he has an option to make that delivery at a fixed difference regardless of what is the value of cotton. Suppose he were offering me, for illustration

Mr. LAMB. Do we understand you bought in Liverpool and shipped back here?

Mr. PARKER. No, sir. I thought at that time that Liverpool was unduly depressed; and as a manufacturer I thought it was a very good chance to hedge, myself, and I hedged in Liverpool. I may add that it did not respond quite as fast as I had expected. I came out all right, but not as fast as I had expected.

Now, I am going to give you an absolute illustration, sir. I sold last May or April the product of my Mononghan mills for nearly eighteen months, or over fifteen months, from April, 1909, to January, 1911. I sold the entire product of that mill at one sale. I figured then, as a business man, only upon the parity between spots and goods. Therefore I figured, "How much can I buy my spot cotton at, based upon what I can get these gentlemen that are going to sell me to sell at, and what I sell my goods at-how much profit have I got in the parity?"

When I made that sale there was such a relation between spots and futures that I had to pay a considerable amount on the futures to get my spots. In other words, we will say, I paid fifty or sixty points, my recollection is, in part, and for some of it as high as a cent on a pound, on futures, to get my spots. The intermediate dealer then had this condition: He covered himself with those futures, of course, and he has been delivering me cotton from time to time since then. During that period I have seen futures rise to a cent and a half a pound over spots, through the process of this circulation. At that time the spot cotton, the stock of cotton in New York, had been greatly reduced. There was only, I think (I am speaking generally), about 30,000 bales in New York. Therefore the speculator was not afraid of that 30,000 bales. Under the operation of that condition, in which. the spots got way below the futures, through the force of speculation, a large stock of cotton was drawn to New York. What was the effect, immediately? That was used as a hammer to hammer down futures, so that futures fell 3 cents below spots, because the spinners ran away from those bales in New York. We were not willing to take the cotton in New York under those conditions. As far as I know, very few spinners take cotton in New York. A few of the Fall River men do it at times, but a very small percentage are willing to do it. If they were to have their rules so that I could demand the cotton, even with my little purchase of 75,000 bales a year, I could keep spots and futures in parity. I could do that if they would have their rules so that I could count on receiving cotton of the class which represents the great mass of the spinning cotton. In an average year I believe I can safely say that 90 per cent of the cotton of the South ranges between low middling and good middling. In the average season, such a season as this, I think I can safely say that only 10 per cent is

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below low middling or above good middling. Yet it is those extreme grades, represented by that 10 per cent, which tend to depress the whole 90 per cent of the South's cotton.

Why is that? Suppose, Mr. Chairman, you were a cotton dealer who wanted to buy a thousand bales of cotton-how would you do it? You would send out a telegram to your correspondents and authorize them to buy you a thousand bales of cotton-not, usually, at a fixed price, but a thousand bales of cotton at so many points on New York, or so many points off from New York futures, as the case may be. One time it is on, and another time it is off, according to the fluctuations of the exchange. But practically every man who buys cotton buys it in relation to futures. Therefore it is impossible to say that the fluctuations in futures do not affect the producer, because the purchase of almost all cotton is made with relation to either New York or New Orleans futures.

Mr. LEVER. Do you mean to say that the local cotton buyer in the local market is absolutely controlled in the price that he gives to the seller of cotton, the farmer and the producer, by the futures of New York and New Orleans?

Mr. PARKER. Yes, sir; I do. Take, for instance, myself as a spinner. Suppose I wanted to have, as I do have, a number of agents throughout the cotton section buying cotton for me during this fall. I can not afford to keep up all the time with the market. I can not give them a fixed price, because if I gave them a fixed price one time I would be above my competitors and another time below my competitors who are buying on the basis of futures. Therefore my instructions to my buyers will be to buy at so many points on New York or so many points off New York. So it is with regard to my friend Mr. Neville. I think I am not mistaken in making this statement. He is one of the largest cotton dealers in the United States. If he sends out instructions to that effect, his buyers throughout the whole South-and he does buy through a very large portion of the South-buy what we call "parities." That is, the buyer is given a certain relation to New York to buy on. He either buys at 40 points on or 50 points off in the futures. Now, take a case, Mr. Lever, where I have bought 1,000 bales of cotton from the intermediate dealer. I have bought it at the price of New York futures, we will say. He agrees to sell me, at May quotations, a thousand bales of cotton for delivery in March, April, or May. He has not got the cotton there; he buys the futures. He immediately becomes interested in the sustenance of those futures. He wants to see futures at least sustained on a parity with spots. Suppose futures go down. The minute futures go down he has a loss in his future transactions. He is going to make that good by trying to force spot cotton down correspondingly. And there is one very serious effect that the fluctuation of futures has on spots. The very minute the intermediate man who has sold me cotton buys futures, he becomes a bear on the market, especially if the futures decline, because he has a loss on his futures. In order to save himself from that loss he is trying to force a corresponding decline in spot cotton; and it is futures which in the end fix the price of spot cotton.

There are of course certain seasons when the farmer in his independence can overcome that. He overcame it in 1908; and if the

committee will allow me I will just read a portion of this report over again. In the report we say:

In conclusion, your committee would heartily congratulate the planters of the South upon the remarkable manner in which, notwithstanding adverse conditions of the times and the adverse conditions on the exchanges, they have been able by the exercise of good business judgment to dispose of their crop at fairly remunerative prices. Your committee feels that were it not for the strength of the farmers in the South, under those conditions very low prices would have been obtained during the past season, and therefore most heartily congratulate our farmer friends upon the excellent manner in which they have managed the disposal of their crop during the past season.

It was due to this very independence and the fact that at that season they were fairly well off, just as they have been this season. They have been able this season to withstand those extreme fluctuations; but it has been due to the fact that they had the financial ability to hold their cotton, and were not forced to put it on the market. If they had been forced to put it on the market they would have felt the effect of it.

Mr. MENDELBAUM. Would this man that sold you that 1,000 bales of cotton from January to June have sold it to you if he had not had some place to hedge? You say he bought futures. Suppose he had not had any place to buy them-he could not sell it to you, could he? Mr. PARKER. I will say to you, gentlemen, very frankly, that he would not have; and I think if he did I would not have bought it from him. If he had not had some place to hedge I would not have bought it from him, because I do not think he could have stood the strain.

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A GENTLEMAN. Do you not consider it rather an unnatural dure to go from South Carolina to New York to buy cotton? Mr. PARKER. Oh, absolutely, sir-absolutely unnatural. A GENTLEMAN. There is another question I should like to ask you, sir: If a contract in New York called for all middling cotton, or all strict middling cotton, do you not think we would have corners up there pretty nearly every month?

M. PARKER. Unquestionably; and therefore the spinners have never asked that. What the spinners do ask is this: We give them the whole range of low middling to fair; but we say: "Do not put on there an extreme cotton like ordinary, which is dirty, and can only be used by a very few spinners."

Mr. NEVILLE. We do not deal in ordinary-good ordinary.

Mr. PARKER. Well, good ordinary is one grade higher than ordinary; but you did deal in ordinary at one time.

Mr. NEVILLE. Never.

Mr. PARKER. Never? Well, I beg your pardon; good ordinary, then. But still, at the same time, good ordinary is a very low grade of cotton as contrasted with middling or strict middling, which the great mass of spinners use.

Mr. LEVER. How many grades do they have on the New York Stock Exchange now?

Mr. PARKER. My understanding is that they have 30 grades now, counting the quarter grades.

Mr. NEVILLE. Counting the quarter grades there are 28, I think. Mr. LEVER. Either one of those grades is deliverable upon a contract?

Mr. PARKER. Any one of those grades; and it is at the seller's option.