The Birmingham age-herald., 1913-09-21
PROBLEM TO WORK
OUT COTTON FUTURE:
TAX WITHOUT HARM
Exchanges Are of Enor-
nous Benefit in Distribut-
ing Risk in Crops
EXPLANATION OF THE
EXPLANATION OF THE
MOST VITAL POINTS
When Fairly Conducted and When
Selling Honest Contract, Ex-
Change Is Considered Ben
eft to the Industry
ny c. e! STEWART


Waship gton, September 2o-(Special.)
The influence of the President OF the
United States is counted on to assist in
working out a satisfactory solution OF
the cotton future" tax which is in-
posed by the Clark amendment and
which, 1t Is believed by most members of
Congress, would II enforced while elm
mating the gambling features OF the
New York Cotton exchange. also be
harmful to the legitimate cotton indus
try.
The purpose OF tho proposed changes is
to eliminate the grosser evils OF the cot
ton exchange, while preserving the mar
ket to the cotton producer.
No one who has made a study of this
problem doubts that cotton exchanges
when fairly conducted and selling an
honest contract are benefit to the whole
cotton industry. The theory Upon which
the exchange was founded and has grown
up In sound. 1t helps to distribute the
tremendous risk of the cotton trade.
Many cotton merchants of today are
satisfied with 90 cents bale profit, ana
very few of the big traders make more
than 81 per bale. The trade has become
SO systematized and the legitimats risks
so widely distributed that small but sure
profits are accepted gratefully.
Price Not Be as High
II there were no means OF inloadins
tho speculative risks upon other shoul-
GERS, there Is doubt If the price paid the
farmers would be as high-this price IN
many seasons as 1t is being woefully I'M
remunerative. The merchant TO protec'
himself from possible fluctuations wouiu
pav price low enough to cover fosses
and Che cost OF carrying the cotton. NOW
these speculative risks are taken by the
exchanges where hedging contracts are
bought and sold.
Most of the cotton grown in the south
ia dumped on tho market within three
months. OF course, only one-fourth or II
Is consumed by the mills during this time
Some one must carry this cotton until II
is needed by the mills, or 1t would be ieIt
on the farmers hands. That is the func-
tion OF the cotton exchanges. 1t Is ac-
complished by means of hedges.
Cotton brought into market in Atlanta
Charlotte. or Houston, is bought by the
local merchants at prevailing spot prices
though IL may not be needed by the mills
Of Nanchester, Bremen and Nagasak
n six months later. The mills at tbs
same time are making their contracts -oi
hthe delivery OF cotton goods ana 1nsurins
Uthemselves against fluctuations In TN
. market by selling hedges" When tht
time comes that they actually need the
raw cotton they Will sell their future
contracts and buy the actual staple, tho
fluctuations in the price OF spots and fu'
lures being expected to counterbalanct
each other.
Where Exchange Argument Fails
Defenders of the New York Cotton Ex-
change fall down in attempting to ex-
plain the absence of parity betweei
future prices and spot prices in attempt
ing to excuse the arbitrary value placed
on low grade cottons which are not spin
nable and which force the buyer OF future
contracts to settle according to the prices
fixed by the exchanges and which do moi
represent actual commercial value.
They explain the transaction this way
A cotton manufacturer when offered 9
contract for goods that will require, say
1000 bales OF good middling cotton Il
make up, does not have to reject the
contract simply because he does not know
where he could lay his hands on 100
bales OF good middling cotton at the mo
ment He buys a conNact on the ex
change calling for the delivery of l00
bales of good middling cotton. He is SURF
that when ne finds some one to sell hin
the 1000 bales he requires, he can sell hi:
future contract at a fairly relative price.
The trouble abolt.that argument is thu
prices are not fairly relative" Shoult
the manufacturer decide to call on tn,
exchange for actual delivery, he is ten
dered cotton which has no commercial
value but mere waste cotton or dos
tail.'' He is forced to settle his contrac
at the difference between the value o.
this inferior cotton as fixed by the ex
change, and the price of the good mis'
ding he thought he bought.
That is true of the New York Cottor
Exchange. 1t is not true of the New Or
leans Cotton Exchange. There a maj
may demand and receive real cotton, ant
IL anything but good middling cotton II
rendered him. it is at price correspond
Ing to the actual commercial differences
In most cases delivery is not contem
plated. as that is not material to thu
'.hedging'' process.
Yet these mythical sales of futures
have an actual bearing upon the actua
marketing of the cotton crop.
The New York Cotton Exchange is or
ganized under the laws of that state will
membership of 500. The corporation
has absolute power over the dealings o
members, and no one but member car
deal In futures The initiation fee for new
members Is $4,000.
The exchange has a committee whicl
fixes the grade of all cotton, and tn,
premiums and discounts on the various
grades as compared to the basis grade
niddling. These differences are fixed fo
months in advance and are not change,
to correspond with actual transactions II
the spot market.
Origin of the Exchange
John Rev of Liverpool England, who's
hrm is still In existence. is credited will
foreseeing conditions which led to tn,