With the supplies and stocks of 1930 serious terminal congestion would doubtless have resulted from speculative resistance to the downward trend in world prices. Congestion would have produced abnormal cash discounts, particularly in the country markets. The Stabilization Corporation was able to minimize this congestion. Farmers also gained through indirect holding up in prices of corn, barley, oats, and other products in sympathy with wheat. These products are mostly either fed on the farms where grown or fed by other farmers. To the extent that nonfarmers have purchased these products at higher prices than otherwise would have obtained, farmers as a group gained by whatever price enhancement there may have been.

Had the radical drop in wheat prices continued after November, 1930, the shock to business and financial institutions, in cities as well as in the country, would have been intensified. Many cooperatives, and banks, dealers, and other concerns, might have been forced into bankruptcy. Grain farmers had large investments in their marketing organizations, which would have been severely crippled if not destroyed, had stabilization operations not stopped the decline in wheat prices in the fall of 1930. The six months of stable prices gave business institutions, cooperative and private, a breathing spell in which to readjust themselves.

EFFECT ON EXPORTS AND CARRY-OVER

It is clear that the support given to domestic wheat prices had certain undesirable consequences, which were offsets against the advantages previously enumerated. Many of these effects have been exaggerated, and for this reason it seems desirable to discuss them here, even though they can not yet be completely evaluated.

First, the effect of stabilization operations upon the total net exports of wheat and flour from the United States is very easy to overstate. Actual net exports totaled 115,000,000 bushels in 1930-31, about half of which was shipped in July, August, and September. This compares with 142,000,000 for the 1928-29 crop, the year before the agricultural marketing act was passed, with 140,000,000 bushels exported in 1929-30, and with a 5-year average (1925-26 to 1929–30) of 154,000,000 bushels.

The world export trade in 1930-31 was characterized by cautious and slow buying, large offerings for export, and by pressure selling, particularly in the case of Russia and Australia. Even at the very low prices current in 1930-31, importers chose to let their stocks run down. It is not likely that either Russia or Australia would have shipped much less wheat had the United States been a free exporter. Argentina was also under pressure to ship wheat almost regardless

of price. Furthermore, it is highly improbable that Canada would have permitted her foreign markets to be invaded by United States wheat at cut prices.

If United States prices had not been supported, net exports of wheat and flour would probably have been only slightly larger than they actually were. They might have totaled about 135,000,000 to 145,000,000 bushels, or 25,000,000 to 35,000,000 bushels more than was exported. Even this additional export probably would have had a significant effect on the world price.

Domestic stocks on July 1, 1931, would have been at burdensome levels in any case. They were only slightly increased by stabilization operations. There is no evidence that world carry-over of wheat would have been materially smaller even if stabilization operations had not been conducted.

EFFECT ON BUSINESS GENERALLY

The stabilization operations helped not only farmers but many business concerns. Country elevators, grain dealers, mills, and other interests were saved from additional loss, so far as their stocks were unhedged.

The stabilization of prices substantially reduced the volume of speculative trading in old-crop future contracts.

The support of domestic wheat prices 25 cents or more above world market parities made it difficult for mills to maintain flour export business, even with the special measures to encourage flour exports. Those which were in position to grind Canadian wheat in bond apparently used increased quantities of bonded wheat.

Since about 1925 our exports of flour have shown a declining trend. As a result of the postwar rejuvenation of the European milling industry and the imposition of discriminatory import duties against flour as compared with wheat, our exports of flour fell from an average of 15,600,000 barrels for the period 1920 to 1924 to an average annual export at 12,300,000 barrels for the next five years (1925–26 to 1929-30). Flour exports were already reflecting this downward trend before the agricultural marketing act was passed. Exports from 1928 wheat were only 12,900,000 barrels. Under the circumstances it seems fair to assume that our flour exports would have declined somewhat during 1930-31 in any case, although the decline was probably somewhat greater on account of stabilization operations. Exports of flour during 1930-31 totaled 12,300,000 barrels, or approximately the same as the previous 5-year average. Mills ground and exported approximately 4,400,000 barrels of flour from Canadian wheat during 1930-31, as compared with 2,700,000 in 1929-30 and a 5-year average of 3,300,000, whereas exports of flour milled

from domestic wheat totaled only 7,300,000 barrels during 1930-31, as compared with 10,300,000 the year previous and a 5-year average of 9,000,000.

COTTON STABILIZATION OPERATIONS

The Cotton Stabilization Corporation was formed by the cotton cooperatives and incorporated on June 5, 1930. Soon after, on recommendation of the cotton advisory committee, the board recognized it as a stabilization corporation under the agricultural marketing act, section 9, paragraph (d), and authorized it to purchase the unsold stocks of cotton held by member associations of the American Cotton Cooperative Association, amounting to 1,241,509 bales.

CENTS PER POUND

FIGURE 3.-Weekly spot cotton prices, August, 1929-July, 1931

20

15

10

5

AUG. SEPT. OCT. NOV. DEC. JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. JAN. FEB MAR APR MAY JUN ULY
1929-30
1930-31.

The world-wide decline in cotton prices was partly checked by the stabilizing influences of Farm Board activities-first for a few months in the spring of 1930, and then throughout the 1930-31 marketing season.

On June 30, 1930, the Staple Cotton Cooperative Association held 77,467 bales of spot (i. e., cash) cotton and futures contracts. This cotton was not taken over by the Stabilization Corporation but was continued in the hands and under the direction of the staple associations. A total of 1,318,076 bales of cotton was thus withheld from the market on June 30, 1930.

The loans to cooperatives had been made in the fall and winter of 1929-30. They had served to stabilize the price of cotton above the 16-cent level during the period when growers were marketing the bulk of their crop. The average price of middling cotton did not decline below the 16-cent level until the last of January. (Fig. 3.) By that time growers had marketed 89 per cent of the 1929 cotton

crop. The board was the only agency able to protect the cotton grower from a precipitous drop in cotton prices when the stock market crashed in October, 1929, and the price of industrial stocks declined more than 35 per cent in less than 30 days.

All industrial and fianancial interests in America sought to check the decline and to protect industry from its effects. Financial interests in New York formed a pool to protect the banks of the country from too drastic liquidation of securities. Industrial concerns raised a large fund to protect their interests from the decline.

The board acted to lighten the shock to farmers. The 1929–30 loans to the cotton cooperatives were primarily for the purpose of supporting the prices of cotton, although they also served to encourage the growth of cooperative marketing. The price of cotton finally declined, however, to a level where values were less than the loans made by the board. The Cotton Stabilization Corporation was, therefore, authorized to assume the burden which the cooperatives had up to that time carried for the benefit of all cotton growers and to hold these stocks until some method for their disposal could be worked out.

Later it became clear that demand continued restricted and that supplies of cotton outside the control of the Cotton Stabilization Corporation were more than ample to cover all requirements. If the stabilization cotton were marketed during the year 1930-31, it would have depressed cotton prices still further. It was therefore decided to hold the stabilization cotton off the market during the remainder of the crop year 1930-31. On September 23, 1930, the following statement was issued by E. F. Creekmore, president and general manager of the Cotton Stabilization Corporation:

The present holdings of the Cotton Stabilization Corporation will be maintained throughout the present cotton season ending July 31, 1931, unless the price in the meantime advances to or above the purchase price. If any part of these holdings is sold in order to meet special requirements of mills or for other sufficient reasons, the quantity thus sold will be replaced immediately by the purchase of an equal number of bales so that the total holdings will remain unchanged.

Many persons thought such action would tend to strengthen the price of cotton. The announcement appeared to have no strengthening effect upon the market and no discernible retarding influence upon the decline in cotton prices.

In conformity with this announcement, the net holdings of stabilization cotton were not reduced during the fiscal year 1930–31. From time to time sales were made to spinners of the world from stabilization stocks. These sales were immediately replaced by the purchase of other spot cotton or of futures, the latter being converted into spot cotton as opportunity developed. The total unhedged position

was maintained at 1,241,509 bales as nearly as possible until December, when additional cotton was purchased.

Only one small addition was made to stabilization stocks during the year. As a result of a 2-cent decline in the cotton market between November 1 and December 15, 1930, which threatened to go still further, the corporation, operating through the American Cotton Cooperative Association, in a few days purchased 78,300 bales of futures on the New York Cotton Exchange. This action apparently steadied the market, stopped the decline, and was followed by a gradual rise in price thereafter, which continued until late February and early March. No further purchases were made. Small lots of this additional cotton were disposed of later in the season, leaving 1,310,789 bales owned by the corporation on June 30, 1931.

Special efforts were exerted to minimize carrying charges on stabilization stocks. Cotton held in warehouses where costs were high was transferred to other warehouses where storage and insurance costs were lower or was sold to mills and replaced by new crop cotton at points where storage charges were low. As a result of these economies the costs of carrying stabilization cotton have been reduced until they are approximately $1.93 per bale per year for storage and insurance, exclusive of interest.

Up to June 30, 1931, the Cotton Stabilization Corporation had purchased 1,319,809 bales of cotton at a total purchase cost of $107,533,246. The average purchase price was therefore $81.48 per bale, or 16.3 cents per pound. Net sales for all purposes amounted to 9,020 bales, leaving 1,310,789 bales owned by the corporation on June 30, 1931.

There has been no opportunity for the Stabilization Corporation to dispose of its supplies at a profit. It faces the necessity of developing a selling policy that will be least disturbing to the cotton market and which will keep its losses to as low a figure as may be consistent with this policy. The burden of carrying charges increases the longer cotton is held, and eventually stabilization stocks must be sold. Until circumstances favor disposal, every economy possible will be practiced in carrying the stabilization cotton.21

21 The banks of the cotton-producing States have since agreed to make or renew loans to mature not earlier than July 31, 1932, secured by cotton to the total amount of at least 3,500,000 bales. The board has agreed not to call the obligation of the cotton cooperatives, covering approximately 2,000,000 bales of cotton, unless such cotton can be sold at a price of more than 12 cents per pound, based on the near month of the New York Cotton Exchange, before July 31, 1932, and that the Cotton Stabilization Corporation will maintain its present baleage of approximately 1,300,000 bales until July 1, 1932, on the same terms. This agreement was entered into tentatively at a conference held in New Orleans October 12, 1931, and subsequently approved by the bankers of the South in a series of State meetings on October 20, 1931. In addition, the board agreed to extend these commitments to July 31, 1933, if cotton acreage is substantially reduced in 1932. On November 23, 1931, the board announced that enough cotton had been pledged by bankers so that it would carry out its share of the tentative agreement.