The Birmingham age-herald., 1908-05-04

It's November meeting in accordance with this widening of the actual or commercial differences, and particularly on low grades, since it was at once appreciated that these would be the grades chiefly de- liVered on contract In that season.
 Instead of widening differences on low grades sufficiently to conform to the com mercial differences, the revision eommit- tee of Ehe New York Cotton exchange made only q slight change In differences for these grades. Thus, the difference off middlng for low middling was increased only from OBS cent to 0.50 cent. although the difference off for this grade in sey- seral leading markets in the south was 1 cent or more, and the average difference in 21 leading markets was 0SS cent. In the case of good ordinary cotton the New York difference was increased only from 1 cent to 1.25 cents off middling, although the difference in New Orleans and some other large markets for this grade was al- most cents, and the average difference In IS markets was about 56 cents. The differences on middllng in New York for the high grades were increased more sharply, but this was a matter of less interest to the cotton trade, because 1t was apparent that practically no high grade cotton would be delivered on con- tract in the season of 1906-7
 Improper Revision.
 The effect of this improper revision was to cause a severe decline in the price of future contracts and, consequently, enor- nous losses to holders of contracts In the New York market. Those who had bought contracts prior to the revision with the expectation that. the revision committee would make a proper change in grade differences were confronted by the prospect that they would be rendered low-grade cotton at the narrow differ ences thus fixed by the revision commit tee, or, in other words, at much above it's value in the spot market relative to niddlng. As a natural result there was rush to sell out contracts, and this, in connection with heavy short selling by those who understood the effect of this
 improper revision sent the contract price to an abnormal discount as compared with the price of spot middling.. Through out the year 1906 before the November revision, it Is true, the discount had been greater. than usual, but generally not over 60 to 70 points. After this meeting of the revision committee on November 21 it increased rapidly, until in February it amounted to almost POO points The price of spot middling on February l. 1907, was II cents while that of future contracts maturing in February was only 9.04 cents.
 Many of the victims of this disturbance of the parity were spectators, and for this reason the matter has been lightly dismissed by some. Without commenting upon the injustice of this argument, it is important to emphasize that the losses resulting from the increase in the margin between the spot and the contract price as result of this improper revision fell also very heavily upon cotton merchants who, instead of speculating, had pur- chased contracts in the New York market as hedges for the very purpose of aVoid- ing speculation in their transactions in spot cotton. Instead of thus escaping speculative risks such merchants found that they had lost enormously because of such hedges Their hedges proved to be worse than no hedge at all.
 The losses of cotton merchants thus using the New York market for hedging purposes reached in the aggregate many millions of dollars. Several failures in the cotton trade were attributed directly, and apparently with justice to this improper revision.
 Bitter Feeling Aroused.
 This revision of November, 1906, and its consequent losses, caused intensely bitter feeling in the cotton trade. Dissatisfac- ton was aggravated because of a we'll 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 consider able stock of low-grade cotton which they could, by reason of the unduly mar row differences off for such grades de- liver 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
 Several members of the committee ad- mtted that they were short of the New York market or were carrying cotton at the time of the revision. Undoubtedly such members made large profits as re- suit Most of these members contended that this did not influence their votes. Others admitted that in their opinion it was practically impossible for members Of a revision committee who were extensive ly interested in the market to avoid be- ing influenced by personal considerations.
 Several members of the committee were opposed to any revision whatever, and, although in minority, they succeeded in preventing a proper revision Those mem- bers who opposed a wider revision, In defending their action, generally took the ground that they believed that current reports of damage to the crop were great ly exaggerated and that they endeaV- ored to establish differences which. talk ing into account the entire 10 months in- tervening before the next revision date would be fair This defense only illus trates the inherent defect of a system of fixing differences to apply for months in advance. If this theory be adopted, it then is the duty of committee to attempt to establish differences which will con form not to current but to possible future commercial conditions and the system degenerates into mere guesswork, which, as the result in this case proved, may be very far from the mark.
 Some members attempted to excuse their action on the ground that the diff ferences reported by southern markets at the time of revision were incorrect, but careful investigation shows that, al- though there were occasional errors in quoting commercial differences in some markets there had unquestionably been a material increase in differences through out the south generally prior to the meet ing of the committee. Others argued that the character of the crop was greatly in- jured by weather conditions after the re- vision. While there was unfavorable