part and that year a large part-and not only that year but the succeeding year and the next year after that, by depreciation, by the fact that there was a lot of this low-grade cotton there on the market to be tendered, why, it is mighty poor judgment. What we want is to have cotton in New York to be of the same quality as cotton elsewhere, and not to have this low-grade cotton used as it is to depreciate the price of all the rest of the cotton because of the accumulation of a stock of low grades in New York.

Mr. BEALL. Some reference has been made here to certain abnormal conditions that prevailed in 1906.

Mr. PARKER. Yes.

Mr. BEALL. I want to ask you if, in your judgment, the New York Cotton Exchange was to any extent responsible for those abnormal conditions? In that connection Mr. Neville paid a tribute to this report of Herbert Knox Smith, and I want to read this extract to you:

This revision of 1906 and its consequent loss caused intensely bitter feeling in the cotton trade. Dissatisfaction was aggravated because of a well-founded belief that some members of the revision committee were short of the market at the time the revision was made and thus reaped heavy profits from the subsequent fall in the contract price, and that others were carrying considerable stocks of low-grade cotton which they could, by reason of the unduly narrow differences off for such grades, deliver on contracts at an overvaluation. Charges were freely made that members of the revision committee had deliberately abused their trust and had, in their own interest, established differences which they knew to be false.

Mr. PARKER. I do not make the charge, and I would not make it. It seems to me there is no doubt that the charge was made. It is also true that the meeting was held in New York. The storm had taken place in September or early in October. Therefore the per cent of lowgrade cotton was known, or reasonably well known, in November; and yet the differences were so fixed, the arbitrary differences, that those low grades were not near what commercial differences fixed them, and there was a charge of interested parties. I do not make such a charge.

Mr. BEALL. Is it your opinion that there was anything wrong in the differences as fixed?

Mr. PARKER. I think the differences were wrong. I will not say or intimate for one moment that the differences were fixed on anything except honest differences of opinion. The differences certainly proved wrong, because it had the effect, a little later in the season, of making a difference of 228 points-I said 150, but Mr. Neville says 228-between the price of middling and the price of contracts, which I think showed that they were very wrong in their differences; and there was no question about it that they made a great mistake in opinion, putting it on the best plane, as I most carefully do.

Mr. MCLAUGHLIN. I want to know why a man will make a contract to buy a quantity of cotton, calling for a good quality, when he knows that poor quality can be forced upon him?

Mr. PARKER. He does not; that is the point. Therefore he runs away from the delivery; and if they will modify their contract so that I can take delivery, I can put that contract up to futures. But I run away from it. I would rather take my loss of 1 or 2 cents than to have undesirable cotton put upon me.

Mr. Cocks. I do not see why, as Mr. McLaughlin says, a man will make a contract of that kind when he knows that a poor quality of cotton can be forced upon him.

Mr. PARKER. He does not make that kind of a contract, because he can not.

Mr. Cocks. Why do you make a contract at all, if you do not know what kind of a contract you are going to get? Mr. PARKER. That is about the point I am arguing now. If we can not get the New York contractor to give us a contract so that we know what we are going to get, it is time to abolish the exchange.

Mr. BURLESON. If he took deliveries there would not be so many commissions, maybe. It is because of the commissions; it is to the interest of the exchange to have as many commissions as possible. Mr. Cocks. Could you not buy cotton elsewhere and eliminate the New York Cotton Exchange?

Mr. PARKER. I have tried to do that, and what was the effect? I bought from as responsible a firm as there was in the United States. I bought their futures. They hedged themselves on the New York Exchange. They failed. I might as well have taken my own losses on the exchange. It is because I do not know what to do. If I hedge, if I protect myself by buying from the ordinary dealer, I know what he is going to do; he is going to protect himself by buying on the exchange. Therefore if the losses come so as not to protect him, he can not respond to his promise to me, so that I am the loser in the end. I do not know just what to do. If I buy on the exchange I lose and if I buy from the dealer I take the chance of loss.

The CHAIRMAN. The idea his question suggested to me was the query why, if you are not satisfied with the present operations of the board of trade, you do not buy your cotton in the warehouses.

Mr. PARKER. I am glad to say that I have to-day every bale of cotton in my warehouses which I will need to run me until next October, so that I am not worrying at all. But take it last April; it is true we have got into the practice of using the exchange and using the intermediate man. Take it last April, when I sold that big sale, carrying my mill from January, 1909, to January, 1911. I could have gone out and bought spots if there had not been exchanges, and we hope that things will be all right, and therefore I use the exchange or the intermediate man who did use the exchange; it is the same thing in the end.

Mr. Cocks. That would require a great deal more capital?

Mr. PARKER. That would require a great deal more capital; yes. But still, I am glad to say, that particular mill I could have done it with; but I would have had a loss and a locking up at that particular time. Just at that particular time, to illustrate to you, if I had pursued that particular practice, right at that particular time spot cotton was then selling in the South at 94 cents. I made my contracts for delivery in the fall at 93, just up for what I would have had to pay for spots. If I had carried the cotton from April to next November, when I was buying the other cotton, I would have been out a good deal of money in interest and charges; therefore it was better for me to buy that way.

Mr. Cocks. Your idea is that when this warehouse proposition gets in shape you can buy this cotton from the warehouse as you need it?

Mr. PARKER. As I need it, and as the farmer thinks it is the price for him to dispose of it.

Mr. Cocks. Then it will be a question between you and the speculator on the exchange?

Mr. PARKER. Yes; that is it.

Mr. CONE. Take the man who sold you that cotton for delivery months and months ahead; if he had not been able to hedge himself, could he have possibly sold you the cotton at anything like that price?

Mr. PARKER. No, sir. That is the reason I have said, in all sincerity, there were certain good effects from the exchange. There is no question about that. He could not have sold me at 9§ if he could not have hedged on the exchange; and the fact that he could, enabled him to sell me. He would not have sold those goods ahead if he had not been able to hedge, and I admit that it would have changed my course of business. But I would rather have the change in the course of business than take the risk I am now taking.

Mr. CONE. You admit there is a certain amount of risk, anyway? Mr. PARKER. Yes.

Mr. CONE. Would you not put the market in New York so that it could be cornered by any man with a few millions?

Mr. PARKER. No; not if you will do what we ask you to do. We recognized that possibility, and therefore we say as follows:

If it be contended that such a requirement would tend to manipulation in making it practicable for buyers to squeeze sellers, then your committee feel that a further provision would wholly eliminate this possibility, namely, that a provision should be made for the certification of cotton in standard warehouses in the cotton-producing States, and that delivery may be made on contracts of cotton in these standard warehouses, with a proper allowance of freight to the exchange point.

I do not claim that that cotton must necessarily be in New York. Let us standardize our warehouses and put the cotton in the warehouses there, and if a squeeze takes place in New York during the cotton season we can get 100 bales or 200 bales.

The CHAIRMAN. Is it not true also that in margin dealing we eliminate the danger of a corner by making the amount that would be necessary so large that it would be impossible to assemble capital enough to do it?

Mr. PARKER. It is, except in this way. Take what occurred this last fall. Why did futures run so high over spots? It was because the stock of cotton in New York had gotten down to 38,000 bales; or 30,000 bales, was it not?

Mr. NEVILLE. Never that low.

Mr. PARKER. How low was it?

Mr. NEVILLE. Thirty-eight thousand bales.

Mr. PARKER. Thirty-eight thousand bales. The stock of cotton in New York had gotten down to 38,000 bales. That is not so much. I myself use 75,000 bales. Therefore I could corner that 38,000 bales by taking it up. What happened? The fear of a corner there put futures up to 17 cents, 1 cents over spots. That is what happened. They got the futures up so high that in comes the dealer, and in a very short time they increased the stock in New York three or four times over.

Mr. NEVILLE. Oh, that stock was increasing in New York all the season. It was a gradual increase.

Mr. PARKER. Well, a gradual increase; and the amount finally got to the point where it was 160,000 bales, and then it got beyond

the point where there was a squeeze, where they could take it up, and then occurred this break of 3 cents a pound. That is the manipulative feature that goes on all the time.

Mr. NEVILLE. Do you mean to say that the smallness of the stock in New York was responsible for the advance of the market?

Mr. PARKER. The smallness of the stock in New York was responsible for the advance in the market, of futures as compared with spots. Take it in the fall of 1903. I will leave it to my friend whether I am right or not. I saw a condition in 1903, in September I think I have the date right-in the Hayne-Brown corner in New York, where cotton on the 30th of September was worth 13 cents and on the 1st of October it was worth 9 cents. Is not that right? Mr. NEVILLE. That was a corner.

Mr. PARKER. We propose to protect you against the corner by providing that you can deliver cotton anywhere in the South, wherever it is. I recollect one of my friends sent by express a whole train load of cotton in order to get it there before the 1st of October. Mr. HUBBARD. There was not any cotton in the South at that time. The crop was late.

Mr. MENDELBAUM. You have testified here that on the day when cotton sold at 163 cents in New York you bought cotton in the South

at 14.75 cents.

Mr. PARKER. No; I told you I was offered a certain grade of spot cotton at 14.75.

Mr. MENDELBAUM. What would have prevented that producer from sending his cotton to New York and selling it at 16.50 cents at that time?

Mr. PARKER. Nothing in the world, except he did not know enough. If that producer had been as smart as the speculator, he would have forwarded that cotton to New York and delivered it on the contract.

Mr. MENDELBAUM. He would have gotten 16.50 cents?

Mr. PARKER. Yes, he would have gotten 16.50 cents, subject to the charges for transporting the cotton. But our farmers do not appreciate the benefit they can get in that way. Of course they do not know. They can not follow all these things all the time. I can not do it myself.

The CHAIRMAN. We are very much obliged to you for the information you have given the committee.

TESTIMONY OF MR. CHARLES S. WEBB, OF GREENVILLE, S. C.

(The witness was sworn by the chairman.)

The CHAIRMAN. Will you state what your business connections are? Mr. WEBB. I am in the spot cotton and brokerage business; spot brokerage. I just want to start out, gentlemen, by saying that I have been selling cotton to the mills in the South for twenty years, and I will say this, that I have not yet found a bull among the spinners. Ninety per cent of them are bears all the time. I buy spot cotton and sell contracts against it, when I can not sell the spot cotton. I probably to-day could get an order for 100 bales or 200 bales of cotton from a mill and go into the market and buy it from a farmer. I buy direct from the farmer. But if I can not get an order from the mill I can not afford to drop out of the market, so therefore I have got to fix a figure on a legitimate profit by hedging the spot

cotton that I buy, and if I buy 100 bales of spot cotton to-day and can not sell it to a mill, I sell contracts against it until I can find a place to sell this cotton, and then I unhedge, and I figure on a legitimate profit. Now, sometimes I get left.

The CHAIRMAN. By that word "unhedge" you mean that you sell your contract?

Mr. WEBB. I buy it in.

The CHAIRMAN. I see.

Mr. WEBB. I buy it in. In other words, I buy 100 bales of cotton from Jones. He comes to town and he says, "Webb, I have 100 bales of cotton that I want to sell." I say "I am very sorry; I have not any place for it." I go to the mill, and they are not in the market. Jones says, "I want to sell my cotton." I say, "I will give you so and so for it;" and then I will just telegraph to New York and sell 100 bales against it, because I have bought 100 bales of spot cotton. I will probably keep that cotton sometimes a week or a month; until I can sell it. If I sell that cotton in a week's time,100 bales, I telegraph to New York to sell those 100 bales and close out my contract. Then the mill man comes to me. He rings me up on the telephone and he says, "Mr. Webb, I want to buy 50 bales of cotton.' Mr. Parker is a friend of mine and a very good one, and a good customer, and he buys a great deal of cotton from me, and I must say that I hardly ever sell him cotton for immediate shipment. He sells his goods probably six months ahead. As I say, he will call up the cotton men all over the country and say "Gentlemen, I want to buy 5,000 bales of cotton." I will go to work and figure what I can do. If I do not want to sell it myself, I have other merchants I represent. I represent Weld & Neville, and I will call them up and I will say, "Gentlemen, Mr. Parker wants to buy 6,000 bales, from January to July." This is in the fall, when cotton is moving freely. They will give me the price; "Sell it to him 60 points on May."

Mr. LEVER. What does that mean?

Mr. WEBB. "Sixty points on May" is sixty-hundredths.
Mr. LEVER. Based on what?

Mr. WEBB. Based on May.

Mr. LEVER. On May what?

Mr. WEBB. Contracts in New York.

Mr. LEVER. Spot or future?

Mr. WEBB. Future contracts, because he is buying future cotton; buying it for future delivery. Mr. Parker fixes the price right then. He says, "Fix the price on it at 60 points on." We buy then 6,000 bales of cotton in New York. Weld & Neville sends word to his men all over the country, while cotton is moving, and buys the cotton in and puts it in the warehouse and carries that cotton for the spinner. The moment he buys this cotton in, if he buys 100 bales a day, he unhedges and he closes out 100 bales; and so on until he has closed the whole contract out. Now, if we had no place to hedge, we could not sell him that cotton. It is absolutely impossible for us to do business, and I believe it would be impossible for Mr. Parker to sell a yard of goods ahead. You abolish the cotton exchange and, in my opinion, you put the price of cotton in the spinner's hands.

The CHAIRMAN. I believe there is no future market in wool.
Mr. WEBB. In wool?

The CHAIRMan. Yes.

36387-A A B-vol 2-10-5