Mr. LEVER. At the seller's option?

Mr. PARKER. Yes, sir. I am trying to make clear to you that what I want is this: If the exchanges will give us a condition in which spots and futures keep together, I say the farmer can take care of himself and the spinner can take care of himself. But do not give us a condition in which there is disparity between spots and futures, and one is used as a hammer to hammer down the other.

What the spinners ask is that all the option be not given to the seller. Let the buyer, the consumer, have some option in the class of cotton, so as to keep the two together. Therefore we ask this (reading):

That at a reasonable time before tender date the buyer may give notice that he will require the delivery to him of the grade average middling, nothing below low middling, nothing above good middling, and for such option he should be required to pay a reasonable excess over contract price, say one-quarter cent per pound.

If that rule is passed, gentlemen, I will guarantee you that spots and futures will stay within one-quarter of a cent a pound of each other all the time; and I will guarantee that the seller and farmer will have no reason to complain of these enormous disparities.

Mr. SIMS. I should like to ask you a question, Mr. Parker. Could there be, practically, any considerable amount of hedging in deliveries for November, April, or June, in which there are practically no future dealings?

Mr. PARKER. No, sir; I would not think so. Of course, I know there have been times in the past when there were sellers who would sell in those months, but as a rule I regard it as extremely perilous unless a man has the spot cotton in hand. The effect of it would be this upon the spinner: (I admit that if they abolish the exchanges I will have to readjust my business, but I can readjust it in this way.) In place of buying contracts, I will simply have to buy spot cotton and put it in my warehouse and keep it for the months when I want to spin it. It would make an anticipated demand for spot cotton.

Mr. SIMS. Now, another question: If futures have any legitimate, rational relation to the actual cotton dealings, why is it that there are not so many futures sold in November as in October or December? Mr. PARKER. Because speculation simply selects certain months. Mr. SIMS. And it has no relation whatever to supply and demand for those particular months?

Mr. PARKER. No. For instance, November is an inactive month. Mr. SIMS. Why? Because the gambler neglects it?

Mr. PARKER. Because the speculator prefers other months. February, for instance, is an inactive month. April is an inactive month; June is an inactive month.

Mr. LEVER. I should like to ask you a little further about the grades on the exchange. I understand there are 28 grades. I understand that at one time the New York Exchange abolished the quarter grades. Mr. PARKER. Yes.

Mr. LEVER. Do you have quarter grades now?

Mr. PARKER. The quarter grades have been restored.

Mr. NEVILLE. Not altogether.

Mr. PARKER. Well, partly restored.

Mr. NEVILLE. From full low middling up to full good middling. Mr. PARKER. They have been partly restored.

Mr. LEVER. I understand you to say from full middlingMr. NEVILLE. From full low middling up to full good middling. Mr. LEVER. As a practical mill man, is there any difference between your middling and your full middling?

Mr. PARKER. I can only say, as a mill man, that I have never known mill men to buy full middling. We only buy

Mr. NEVILLE. If you buy a thousand bales of spring delivery cotton, according to your Carolina mill rule, the seller has the option of delivering you half a grade above and half a grade below? Mr. PARKER. If you so express it, for an average.

Mr. NEVILLE. If you so express it, he will sell for an average?
Mr. PARKER. Yes, sir.

Mr. NEVILLE. In other words, you can deliver 10 per cent below middling if you deliver a corresponding 10 per cent above good middling?

Mr. PARKER. That is right.

Mr. NEVILLE. So, after all, in buying your average strict middling, or whatever your average grade may be, you are liable to have to take from half a grade to a whole grade below and from half a grade to a whole grade above?

Mr. PARKER. Yes. Now let me explain that to the committee. Suppose I buy a thousand bales of average strict middling cotton. Strict middling is a half grade between middling and good middling. I have bought average strict middling. I further limit the purchase by saying, "You can give me nothing above good middling; you can give me nothing below middling." Therefore I will get an average strict middling. But the classification of cotton is not an exact science. It is a matter of eyesight; it is a matter of experience; it is a matter of half a dozen conditions which make the grade of cotton. Therefore, in order to cover those differences, which will occur between the most honest men, we will allow the seller to give us 10 per cent, if necessary, below middling, if he offsets that by giving 10 per cent above good middling. We will average that 10 per cent and simply have an allowable variation to cover differences of opinion—that is all. Mr. LEVER. Mr. Parker, if I understand you, as far as you are concerned as a business man, there is no difference between the quarter grades and the full grades that you can see?

Mr. PARKER. I can not determine them, although I buy a good many bales of cotton.

Mr. LEVER. Why should these quarter grades be maintained? What is the purpose of maintaining them?

Mr. PARKER. I can not see what the purpose of it is. I can see what the effect of it is, in my judgment.

Mr. LEVER. What is the effect?

Mr. PARKER. The effect is a depressing effect on the contracts, because it is allowing an additional difference, an arbitrary difference, to be added on or deducted, as the case may be, from the ordinary price of the cotton, so as to have the effect of making it against the advantage of a man to take up the cotton. That is the effect of it. Of course, I do not for one minute contend that my good friends will do that intentionally; but that is, in my judgment, the effect. Take, for instance, good middling: A class of cotton which they would call full good middling is worth about eight points on.

Mr. NEVILLE. A sixteenth of a cent

Mr. PARKER. A sixteenth of a cent more than good middling; yet it would take a mighty exact man to determine the difference in appearance between the good middling and the full good middling. Therefore, if I take up and deliver what they call full good middling, I am at a sixteenth of a cent disadvantage in my trade; and therefore I run away to that extent from the trade.

Now, gentlemen, so far as I am concerned, that is all I have to say as representing myself as a large consumer of cotton. I feel that the exchanges to-day, as now operated, are not of advantage to the consumer of cotton. I am satisfied they are not of advantage to the producer of cotton. Notwithstanding the most illustrative reports of the government officials, notwithstanding the earnest. protests of the mill men who are the consumers, and notwithstanding the protests of the producers, it seems impossible to make our friends on the exchanges realize the justice and fairness of our complaint. The complaint, I feel, is just and fair. I feel, therefore, that the only way in which we can hope for relief is through government action. If the Government, speaking through your committee, feels that the effect of these exchanges is unfortunate for trade, that their effect is to depress the value of the product of the producer, that the effect is to disorganize the business of the manufacturer, and that the result of that is speculation, and that these exchanges, through the rules that they adopt, favor speculationI say, if your committee feels that I feel that we as consumers of cotton, and my friends as producers of cotton, have a right to come here together and ask for action from your committee.

I recognize no other way of bringing this about. I am a great believer in public opinion. I believe that if the public could be awakened to the evil of these exchanges, and if our friends of the exchange could realize how the public feels, the matter might be rectified without legislation. But it is a hard problem. It is one that very few men understand. It is very hard to make clear to the average citizen the effect of these rules to-day. And I feel that legislation is probably the only way we are going to get relief.

Mr. LEVER. Recognizing, as I do, that Mr. Parker is perhaps the greatest cotton man in the South, I should like to ask him a series of questions and get categorical answers thereto, so that the committee may be in full possession of the situation as he can give it to them. The first question I should like to ask is this: What is the relation of spots to futures? Of course I understand that you have covered most of these matters, but I should like to have them in a little better shape for the record.

Mr. PARKER. I will answer that, Mr. Lever, by saying that at the present time, under the present conditions, so far as can be done and so far as would be done except for the strength of the individual holder, contracts control the price of futures. There may be a condition, and there has been at various times in the last few years, when the producer simply became so absolutely independent, saying, "I won't sell my cotton at this price," that contracts have not forced the sale of cotton. As a rule, however, the spot cotton is based on futures.

Mr. LEVER. Very well. Now, I will ask this question: What depressing effect, if any, have futures on spots; and why?

Mr. PARKER. As I explained a few moments ago, take the case of the forward hedged sale, the hedged purchase: If I buy a thousand bales of cotton from my friend, Mr. Neville, who sells me for delivery in May, he, in strict business caution, as things have been going, would buy futures. The minute he has bought futures he becomes materially interested in whether those futures decline or not. If they decline, then he has to secure a corresponding decline in spots, or he will be a loser. Therefore, his earnest effort

Mr. BEALL. Regardless of whether futures decline or not, is he not interested in having spots decline?

Mr. PARKER. Well, yes, he is certainly, of course. At the same time I take it that the large majority of my intermediate friends are always figuring on legitimate brokerage of a certain amount on the bale; and if they can just get that percentage they are satisfied with their profit. Therefore he is figuring on making a profit, we will say, of 50 cents a bale or $1 a bale. I think most of them figure on 50 cents a bale as a legitimate profit on the transaction of selling.

Mr. NEVILLE. Right there, at that point, if you will excuse me, Mr. Beall: Would not a conservative merchant who sold you in January for May delivery fix the price on that cotton for your May delivery at the price that he would have to pay for the spots, plus the carrying expenses for May, and put that cotton in the warehouse in January?

Mr. PARKER. That is what he should do.

Mr. NEVILLE. Is not that the generality of the practice rather than the exception?

Mr. PARKER. No; I should not say that, Mr. Neville. I should think probably that a man of your financial strength-if you will excuse me for saying it-would do it. I do not think the large majority of sellers would do it. The large majority would wait until later in the season and buy their cotton as they could from time to time, so as not to have to put out too much money in carrying it. There are exceptions to that statement, of course.

Mr. NEVILLE. The question of the price that your seller asks you for May delivery of a stated grade is certainly one where a prudent merchant is not going to take the risk of the remaining crop and the market, and buy his futures with the prospect of buying his spots in May at a point that would be convenient to your mills.

Mr. PARKER. That depends, entirely

Mr. NEVILLE. He is no merchant; he is a speculator, both in the price he has sold you the cotton for and on the probability of getting the cotton in time for the delivery.

Mr. PARKER. That depends on the season, Mr. Neville. This season, as I say, a man is taking a very considerable risk in selling May cotton without having the cotton, because there is very little left for him now. Last season there was a great deal left. Therefore he could have taken that risk perfectly well, and I think the large majority did take that risk of selling ahead for the spring and summer months, and depending upon covering it as the months came around.

Mr. SIMs. Let me ask you a question. If a broker sells you a thousand bales of cotton for October delivery and then goes out and buys a thousand to cover it, that is called hedging?

Mr. PARKER. That is right.

Mr. SIMS. As the time approaches to buy the actual cotton, if a large crop appears to have been made the tendency is for a decline? Mr. PARKER. That is right.

Mr. SIMS. As he wants to buy his cotton largely in September and October, will he not naturally help depress the spot market by dumping his futures before he makes his purchases of spot cotton?

Mr. PARKER. He may do that; but my experience would be that if a man did that, if I learned that a man had once done that, I would never buy another bale of cotton from him.

Mr. SIMS. Would not that be a temptation?

Mr. PARKER. That would be a temptation; but I want to say that the large majority would not do it.

Mr. SIMS. But suppose cotton is advancing all the time-would not the temptation be to do it?

Mr. PARKER. Yes. At the same time, my experience is that nine out of ten intermediates do not let their contracts go until they have bought their spot cotton.

Mr. SIMS. But they could do it?

Mr. PARKER. They could do it, unquestionably. I can only say to you that as a large consumer-and I think my friends will say the same thing—if I ever thought a man was doing that I would not buy any more cotton from him, because he would be broken. Ordinarily a season like this would have broken him.

Mr. SIMS. He would have just taken the risk?

Mr. PARKER. He would have taken the risk.

Mr. WEBB. Is it not true, Mr. Parker, that the higher futures go the lower the basis is of spot cotton?

Mr. PARKER. That is correct as a general proposition, especially where futures are carried, as they were this last season, above the basis where they can be used legitimately in spinning.

Mr. WEBB. Therefore a spot man that sold you a thousand bales of cotton would not want to depress the market, because the higher the future market went the cheaper he could buy?

Mr. PARKER. No; the only time that his effort to depress comes in is where futures have declined, although spots have not. It is where futures have declined, and he therefore wants to bring spots down to the basis of futures.

Mr. MENDELBAUM. I should like to ask you a question. Will you buy cotton largely from a party unless you are satisfied that he hedges?

Mr. PARKER. I will not under present conditions.

Mr. MENDELBAUM. You will not?

Mr. PARKER. I will not buy cotton in any quantity from a man who does not hedge. If the hedging were done away with, if the futures were done away with (as, under present conditions, I feel that they had best be), I would simply change my methods of business. I would not buy forward months at all; I would buy spot cotton and put it in my warehouse. Take, for instance, inch-and-aquarter cotton last season. I believed last season that inch-and-aquarter cotton was too low, as you did, no doubt; and therefore, under those circumstances, I bought all the inch-and-a-quarter cotton I needed for next October out of last year's crop.

Mr. MENDELBAUM. Who did you buy it from?

Mr. PARKER. From Vicksburg, Greenwood, and Greenville.