cents from the middle of April until late in May. During April and May the known policy of the cotton cooperatives to accept delivery on their futures contracts was a major factor in the strength of the market. This operation, however, gave rise to disparities among various cotton futures, helped to keep American cotton prices out of line with cotton prices abroad, and probably restricted exports somewhat.

The Cotton Advisory Committee, created by the cooperatives under authority of section 3 of the agricultural marketing act, met on May 16 and 17 and went carefully into the whole situation. It was then apparent that no substantial recovery in cotton prices could be counted upon in the near future. It was also considered that forced liquidation of the stocks of the cooperatives, upon which Federal Farm Board funds had been advanced, would have several serious results: To depress the cotton market to such a further extent that heavy losses on board loans would be inevitable, as the cooperatives had no large assets beyond the commodity itself; and, further, to injure seriously outside growers, cotton mills, and the cotton trade in general. The committee therefore recognized the necessity of withdrawing from the market the distressed cotton held by the cooperatives.

As announced on June 5, the committee reported to the board that there was an emergency in the American cotton market requiring a stabilization operation such as is contemplated in section 9, paragraph (d) of the agricultural marketing act, and recommended that such operation should be undertaken. Accordingly, the Cotton Stabilization Corporation was formed by the cotton cooperatives and incorporated on June 5; and soon after, on recommendation of the Cotton Advisory Committee, the board recognized it as a stabilization corporation under the agricultural marketing act. On June 30 the board granted this corporation a loan of $15,000,000 to enable it, with funds to be borrowed from other sources, to undertake stabilization operations in cotton. Discussion of these operations must be deferred to a subsequent report.

At this point, however, it is pertinent to observe that practically all of the conclusions outlined in the previous section, with respect to stabilization operations in wheat and like commodities, apply to cotton-stabilization measures in substantially the same way. Indeed, in some respects, the hazards and difficulties involved are greater in the case of cotton, because exports constitute a much larger factor of our crop than is true in the case of wheat.

In the next nine days after the announcement of June 5 was made, cotton prices dropped about 212 cents a pound, to the lowest level reached during the season up to that date. This occurred in spite of the board's announcement, which leading trade observers re

garded as indicating a broadly constructive step. The factors primarily responsible were very favorable weather for the 1930 crop, acute weakness in the stock market, unfavorable indications of sales of cotton cloth, continued contraction in the consumption of raw cotton, and increased pessimism in the trade concerning the supply and demand outlook.

In the case of cotton, as with wheat, it was clear in the winter of 1929-30 that the successful outcome of stabilizing endeavors was dependent upon the cooperation of cotton growers. Though the full extent of the depression in the world cotton industry was not then foreseen, it was realized that the carry-over would probably be increased and that subnormal consumption would probably last for several months. Curtailment of production in the face of restricted consumption was called for. It also appeared from records of past crops that cotton growers, as a group, ordinarily receive a greater total return from the production of 40,000,000 acres or less than they do from a crop grown on 45,000,000 to 50,000,000 acres. It was further ascertained that American cottons were meeting increasingly severe competition from foreign cottons by reason of the large proportion of extremely short-staple cotton here and improvements in the staple of foreign cottons, especially Indian.

The cooperation of the Department of Agriculture and the State educational and extension agencies was obtained in presenting these facts strongly to the attention of the cotton belt. By means of radio addresses, letters, and other forms of publicity the board itself sought to bring these facts home to cotton planters, in the hope of obtaining a reduction from recent high acreages planted to cotton. It specifically recommended that southern farmers first provide enough acres for a reasonable supply of home-grown food and feed before planting cotton, and further recommended that no land should be planted to cotton which had not produced at least one-third of a bale per acre on the average for the last five years. It believed that if these recommendations were generally carried out the possibility of maintaining satisfactory prices for cotton in the future would be greatly enhanced. It would manifestly be impossible, through stabilization operations or in any other way, to maintain cotton prices at the level of the loan basis used during the last year in the face of continued excessive production. The board has made every effort to correct the impression which has obtained in some quarters that it might attempt such an impossibility. Only limited success attended these endeavors toward acreage reduction in the 1930 planting season, and the failure of cotton producers to bring about substantial curtailment in the cotton production of 1930 has contributed heavily to defeat the purpose of the

stabilization measures that were undertaken in cotton. Much more extended and intensive efforts to secure readjustments in cotton production, in the face of a carefully considered world outlook, are planned for the planting season of 1931.

BUTTER STABILIZATION OPERATION

The dairy season of 1929–30 illustrates the extent to which a minor stabilization operation, undertaken by a cooperative marketing association as a part of its merchandising program, may assist in checking unwarranted declines in the price of an agricultural product, and by thus bearing the brunt of the pressure for a time, secure for producers a larger return than they could otherwise obtain. Bytter production in 1929 was larger than that of 1928 by 110,000,000 pounds, or 7.4 per cent. Production during the period AprilSeptember not only was materially heavier than during the corresponding period in 1928, but it also exceeded the previous record production of 1927. In consequence, the movement of butter into storage in the spring and summer of 1929 was heavier than usual, and by September 1, 1929, storage stocks had piled up to the record quantity of 169,000,000 pounds. This was nearly 25,000,000 pounds above the average storage holdings for that date in the five preceding years.

Unquestionably the statistical position was unfavorable, and probably a much less formidable force than an industrial recession would have sufficed to initiate price declines. The abrupt decline in business activity in October-November was accompanied by a termination of the seasonal rise in butter prices in October, a month earlier than usual, and the decline which followed was much sharper than ordinarily takes place at that season of the year.

At the same time butter stocks continued to increase above the levels for corresponding dates in the several preceding years. On November 1 stocks were 27,000,000 pounds in excess of the 5-year average, and the price of 92-score butter at New York was about 45 cents per pound. On December 1 the excess stock was 33,000,000 pounds, and the price 43 cents. On January 1 the excess was again 33,000,000 pounds, and the price was 38 cents per pound. With storage holdings on January 1 nearly 70 per cent above the average for that date, prices began a still more rapid decline. By the middle of January the price had dropped to 36 cents per pound-an exceedingly low price for butter in midwinter, as compared with average prices for January of 47 cents for the eight preceding years.

The farm price of butterfat in Minnesota dropped from 48 cents per pound in October to 45 in December with a further drop of 7 cents to 38 cents per pound in January. In the territory served by

centralizers, as represented by Kansas, butterfat prices declined from 43 cents in October to 34 in December. The January price in Kansas was 28 cents a pound or 6 cents below the December price, a total decrease of 15 cents from October.

These exceedingly low prices to producers of butterfat, especially in the centralizer territory, served to check somewhat the increase in production at the end of 1929. By January, 1930, butter production showed no increase over January, 1929, with estimates indicating that the total for the month would be approximately a half million pounds (or about one-half of 1 per cent) less than for the corresponding month of the preceding year. At the same time consumption was increasing.

With falling production and increasing consumption, conditions were such as to promise reduction of the surplus and to relieve the situation. In spite of this improvement in basic market factors, some of which were not clearly apparent at the time, a weakness continued to prevail in the butter markets. Prices of 92-score butter dropped 5 cents between the end of December and the middle of January.

In this critical period the dairy advisory committee met on January 7, 1930. After a careful study of the situation, it recommended to the board that a loan be granted the Land O'Lakes Creameries (Inc.), the outstanding butter cooperative, to enable it temporarily to withhold its own product from the market and, if necessary, to purchase additional butter on the market. The board granted such a loan on January 9, 1930. As soon as the loan had been granted agents of the association offered to purchase 92-score and 93-score butter at the market quotation, but found no offerings at that price. This seemed to suggest that the price decline had been accentuated by speculative operations. They renewed their offers to purchase high-scoring butter at the market whenever prices were 35 cents or below. During this period of temporary weakness the association also withheld a portion of its supply from the market with the result that by March 15 it had accumulated some 5,194,000 pounds of butter. While prices were held within a narrow range during this period, at no time was an attempt made to run them up. In fact, during the remaining portion of the first quarter of 1930, prices fell to 35 cents or lower on but 16 days, 4 of which were at periods when the association was engaged in merchandising a portion of its holdings.

The storage operations of the Land O'Lakes Creameries (Inc.) involved a total of about 5,200,000 pounds of butter. Most of this butter was placed in storage during the last 10 days of January and the first 2 weeks of February. The total volume thus withheld from the mar

ket was only a small fraction of the total United States supply, and at the peak of the operation, in March, 1929, the quantity stored by the cooperative was only about one-eighth of the total storage holdings of butter in the United States. Despite the small size of the operation relative to the United States total production of butter, this action, on the part of the largest single butter-selling agency in the United States, had an importance out of proportion to the size of the operation.

The board believes that the operation described assisted materially in restoring confidence and in preventing the downward plunge of prices from going to extremely low levels.

In March and April, 1930, consumption of creamery butter continued to exceed that of a year earlier, while production continued to run below that of the previous year. As a consequence, the excess of butter in storage above the 5-year average, which had been 33,000,000 pounds on January 1, 1930, was reduced to 16,000,000 pounds by May 1. With this visible improvement in the situation, butter prices stiffened during the second half of March, and during April ranged from 38 to 39 cents per pound.

In May, as the seasonal increase in butter production began to assume full proportions, butter prices declined again, as is usual at that season of the year. By that time, however, the stabilization operation had been practically completed; the butter which had been withheld from the market had been sold.

As it turned out, the cooperative made a profit on the operation, but the principal benefit lay in saving the dairy producers from having to accept still lower returns on their output.

The success of this comparatively minor operation in butter may be attributed to a favorable combination of several factors. It rested on a correct appraisal of the facts in the situation. It was undertaken only when prices had fallen to a low level, and when producers were already adjusting their production to reduced consumption. It was initiated shortly before butter prices normally show a seasonal advance. There was no export surplus of the commodity, and no prolonged holding was contemplated or permitted. The operation was carried out by a strong, experienced, and successful cooperative marketing association, in connection with its regular merchandising activities; and the operation was brought to an end when the seasonal strengthening of prices appeared.

LOANS FROM THE REVOLVING FUND

Sections 7, 9, and 11 of the agricultural marketing act govern the use of the revolving fund. The loan operations of the board for the year ending June 30, 1930, are summarized in Tables 1 to 7 in Appendix B of this report.