The Birmingham age-herald., 1915-08-03
RESERVE BOARDS REVIEW OF
 COTTON SITUATION
In Letter to Member Banks Governor Hamlin Gives Advice on Moving of
 Staple Crops

| The following letter of Gov. Charles s. | Hamlin of the federal reserve board on
 the moving of crops is particularly inter
 esting to the south:
 There has been frequently in past sea- sons congestion of farm products ac- companied usually by high money rates,
 or at times by actual difficulty in ob- | taining the necessary funds and credits for moving these crops. These cond- tions have been met for several years
 past by deposits made with banks by the Seer etary of the Treasury for crop nov ing purposes. and last year by the fur ther expedient of the issue of emergency currency authorized under the act of May
 30, 1908, as amended, now expired by linn
 itatlon The federal reserve act makes provision for meeting the demand for crop
 moving funds and is intended to guard against recurrence of past stringencies
 In order to forestall any possibility of con- sestion of crops this fall or lack of &C., | commoda tion to move them, the board calls the attention of all federal reserve
 banks to the provisions in the federal re- serve act which have a special bearing
 on this subject.
 Gives Permission
 Section 13 of the act, hereinafter quot ed in full, gives specific permission for the rediscounting for member banks of
 notes, drafts, and bills of exchange se- cured by staple agricultural products. The manifest intent of this provision is to enable producers to market their crops ! in a normal and effective manner. In view of the large surplus reserves now held by the federal reserve banks, by member banks and by other banks l throughout the country, there should be | no difficulty In affording the producers the assistance necessary to enable them to market their products in volume corre- spending to the power of the trade to ab- sorb them. In order to accomplish this | end, It is suggested that federal reserve banks adopt a definite policy with refer enee to redscounting paper secured by documents in satisfactory form evidenc- | ing the ownership of stored agricultural prooccts. Through such a policy together | With proper methods of warehousing
 federal reserve banks can be a potent fac tor in assisting the normal movement staple agricultural products from the field to the factory, or to the consumer. It is recommended that regulations governing
 the rediscount of notes covering advances on such products be issued by such of
 these federal reserve banks whose mem- bers are actively engaged in financing the | movement of such crops to the market
 In so doing the object in view should be to assist effectively, as above pointed out
 tn the normal movement of such products in orderly transfer to the consumer The carrying of products in behalf of specula-
 tors is not permitted under the law, and
 member banks can not certify the notes or spectators as eligible since the act
 does not allow the rediscounting of notes,
 merely Investments
 To Market Cotton
 Special attention is herewith di- rected 10 the marketing of the cotton
 crop. While the yield of corn. wheat and other cereals promises to be large | there Is every reason to expect that these products will find market in | an orderly way. Cotton, however is l peculiarly sensitive to abnormal con ditions such as now exist in our ex-
 port trade and it is clearly in the com- mon interest that credits based upon
 this crop be protected as far as pos slble from the danger of demoraliza- ton such as existed during the autumn of 1914. No staple commodity is sub ject to greater variations in price than Is cotton, which during the past 12 years has shown, according to figures based upon official quotations on the New York cotton exchange an aver aSe annual fluctuation of 53S cents per
 pound. the maximum price range dur irg any year of this period being To- 40
 
 mum range 2.65 cents per pound in | 1906. It should be noted however, that with two exceptions there has been no very great difference in the average price of cotton for each of these 12
 years. the exceptions being the year
 1905 when the average price during
 the year In New York was 9S0 cents
 per pound. the lowest of the 12-year seriod, and the other being the year 1 1910, when the average price per pound was 6.45 cents: but the average price for the entire 12-year period was 12 cents per pound. Sudden and violent fluctuations are clearly to the advant- age of neither the loaning banks, the producer the manufactures nor the consumer. They offer on the contrary
 an inviting field for the speculator and
 should the federal reserve system, In
 making possible the more normal move
 ment of the crop, be a contributing factor in reducing these fluctuations 1t would have accomplished a great
 public good.
 Steps to Be Taken
 Tt Is therefore recommended that in pursuance of the policy already in dicated the federal reserve banks com municate with their members and with others who may be interested for the
 purpose of directing attention to the steps which must be taken to secure the necessary cooperation. It Is sug- Sested that the federal reserve banks point out to their members and to the public generally that those who are engaged in cotton production, if they intend to take advantage of the faci1 Ities offered by the banks for carrying cotton, should begin at once to arrange for it's proper storage and insurance as rapidly as ginned. Federal reserve
 banks should particularly point out to | their members that they are prepared to rediscount the notes of farmers and merchants secured by proper ware house receipts for cotton and accom- panied by evidence of insurance. Mem Der banks offering these notes should be prepared to state the grade and market value of the cotton securing paper and the notes should be of the | usual collateral form. providing the right to call for additional security in event of material decline in the market value. The amount to be advanced per bale would be left primarily to the Judgment of the member bank. Tt is further suggested that federal reserve banks in the cotton si2tes should call attention of their members to the desirability of reserving storage space in localities where warehouse facilities are inadequate, for such cot loans. While there Is not sufficient
 warehouse capacity in the south tp provide storage at any ono time for the entire cotton crop, 1t Is believed that there are ample facilities for the proper storage of all cotton that is like ly to be pledged as security for loans