This authorization by the Farm Board is in full accord with recommendations made by the cotton advisory committee and also by the cotton cooperatives, leading southern bankers, and leaders in the textile trade.

The full text of the recommendation by the cotton advisory committee follows: "The cotton advisory committee to the Federal Farm Board met at the call of the board on April 28 and 29 and has gone into the cotton situation with great care, reviewing the data on current demand and supply, finances, and other general conditions.

"The cotton advisory committee understands that the cotton cooperatives are holding approximately 2,100,000 bales of the crop of 1930, under a commitment of the Farm Board extending to July 31, 1933.

"The committee understands that this cotton will be withheld from the market throughout the next cotton year, ending July 31, 1933, unless it can be sold at cost plus carrying charges, which would mean a price around 13 cents. "The committee also understands that the Cotton Stabilization Corporation holds about 1,300,000 bales under pledge to make no net sales before July 31, 1932.

"The cotton advisory committee believes the orderly liquidation of these stabilization stocks to be desirable and that such an orderly liquidation will prove a constructive factor in the market; that a statement as to the extent and manner of such liquidation will remove much uncertainty and doubt.

Therefore, the committee recommends that not to exceed 650,000 bales of stocks belonging to the Cotton Stabilization Corporation, being approximately one-half of the 1,300,000 bales now held, be sold during the coming season, beginning in August, 1932, and ending in July, 1933; that such liquidation be accomplished gradually, with the intent and in such manner that no markets shall be unduly disturbed." 13

The decline in cotton prices that began early in March was temporarily checked for a period of several weeks following this announcement by the board.

In July, 1932, Congress turned over to the Red Cross 500,000 bales of stabilization cotton for relief purposes, without reimbursing the corporation or the revolving fund for their net equity in the cotton. (See pp. 81 to 84 for full discussion.)

1 Gradual liquidation of the stabilization stocks, in accordance with this announcement, was begun during August. Prices of cotton and of other products began a continuous rise, which appeared to mark the beginning of revival from the bottom of the depression. In order to help maintain this improvement and to lessen any competition between sales of the stabilization stocks and the new crop, arrangements were made with the Reconstruction Finance Corporation to partially refinance the stocks of the Cotton Stabilization Corporation and the American Cotton Cooperative Association until March, 1933. The following announcement of this arrangement was issued Sept. 5, 1932:

"Details having been completed with the Reconstruction Finance Corporation and the Federal Farm Board for finances, the Cotton Stabilization Corporation and the American Cotton Cooperative Association make the following announcements each for itself:

"1. Of the 650,000 bales of cotton proposed to be marketed by the Cotton Stabilization Corporation prior to July 31, 1933, more than 300,000 bales have been sold. The corporation will immediately with. draw its remaining stocks from sale until Mar. 1, 1933, with the exception of certain small amounts now on consignment in foreign countries, and such cotton as may be sold at 12 cents per pound or more based on the near month of the New York Cotton Exchange.

"2. The American Cotton Cooperative Association will maintain its present stocks of the 1930 crop until July 31, 1933, with similar exceptions for sales at the above prices.

"3. These steps are being taken and loans obtained so that the cotton growers will get the full benefit of the market for their crop of this year and for the purpose of enabling the organizations to gradually liquidate their holdings during periods when more active demand is anticipated.""

The fiscal year 1931-32 marked the change from the accumulation and holding period of cotton stabilization operations to the disposal period. On July 31, 1932, the Cotton Stabilization Corporation owned 1,308,732 bales of cotton. The loans on this cotton, including $102,042,735.70 from the Farm Board and $22,008,562.70 from intermediate and commercial banks, totaled $124,051,298.40. In addition to the cotton held and these loans, the other liabilities of the corporation exceeded its other assets by $3,524,091.34. The total amount invested in cotton stabilization at that date was thus $127,575,389.74. The stocks of cotton were worth $42,523,912.01 at the market prices of July 31, 1932, or $85,051,477.73 less than the sums invested in cotton stabilization. After that time, however, the price of cotton advanced, and more than 300,000 bales of cotton have been sold at higher prices. If higher prices are continued through the whole of the disposal period, the eventual cost of the stabilization operation to the revolving fund may be considerably less than indicated by the July 31 figures.

In similar manner the spot and future cotton from the 1929 and 1930 crops, which the cooperatives were withholding from sale, totaled 1,825,202 bales on July 31, 1932, against which loans of $70,433,346.23 from the Farm Board and $15,789,139.16 from intermediate and commercial banks were outstanding. The total amount invested in these cooperative stocks, taking into account other liabilities and assets, was $120,959,319.40 on July 31, while the value of the stocks held was $58,025,107.59 at the current prices, or $62,934,211.81 less than the sums invested. Since most of this cotton was received from producers during the 1930 crop year when prices were materially below those at which stabilization stocks were acquired, there is still room for hope that the advances in prices may be sufficient to wipe out a large part of this apparent loss before the stocks are finally disposed of.

The progress of the cotton stabilization operations to June 30, 1932, is shown in Figure 3. Here are plotted, monthly, the unhedged holdings of the cotton cooperatives and of the stabilization corporation. The development of the whole supply situation for American cotton is shown in Figure 4, including annual data since 1920. Except for the bumper crop of 1931, production since 1926 has not been unusually high; but consumption (shown by the solid black bars) has declined steadily since 1928, and fell materially below production in each of the last three crop years. For the crop years 1929–30 through 1931-32, combined, world consumption of American cotton totaled 10,000,000 bales less than during the preceding three seasons.

14 These figures are given for July 31, 1932, as that date marks the usual end of the cotton marketing season. The figures in the tables at the end of this report are for June 30, 1932, the end of the fiscal year. 147614-32-6

This unused supply was dammed up in increased carry-overs and was primarily responsible for the long downward trend in prices. Figure

FIGURE 3.-Cotton withheld from sale by cooperative associations and the Cotton Stabilization Corporation, monthly from July, 1929, to July, 1932

The stocks of unsold cotton which the cooperative associations and the Stabilization Corporation were holding on June 30, 1931, were continued without significant change until May 30, 1932. In July of that year disposition began, as is shown by the decline in holdings in that month. FIGURE 4.-Production, world consumption, carry-over, and price of American cotton by crop years, 1920-21 to date

Production (shown by the cross-hatched bar) has not been exceptionally high in recent years, except in 1931. Consumption (shown by the solid black bar) has been very low, however, as result of the business depression, and carry-over (shown by the white section of the bar) has increased to phenomenal proportions.

BALES MILLIONS

FIGURE 5.-Rate of consumption of American cotton, monthly, 1925-26 to 1931-32
Monthly Seasonal Rate

This chart shows the monthly consumption of cotton expressed in terms of the equivalent annual total. Total consumption of American cotton has been relatively low since the business depression began in the middle of 1929. The marked increase in the consumption of this cotton abroad in the last season was largely due to the short crops of cotton in other countries.

FIGURE 6.-Indexes of cotton consumption and total industrial production in the United States, monthly, 1919-1932

These index numbers of cotton consumption and of the total output of industrial products of all kinds indicate how closely dependent cotton consumption is upon general business activity. The decline in cotton consumption from 1929 levels has been almost exactly parallel to the decline in total industrial production.

The decline in cotton consumption was due primarily to the worldwide business depression, and to the accompanying decrease in the manufacture of cotton in industrial countries. In the United States, where a large part of the cotton ordinarily is used for such industrial purposes as tires, conveyor canvasses, belts, and auto tops, the decline was especially marked. Figure 6 indicates how closely the decline in our consumption of cotton paralleled the general decline in production of all manufactured products.

During the past season foreign consumption of American cotton increased sharply, due to short crops of Indian and Chinese cottons, but even so world consumption fell far below current production, and another large increase in carry-over resulted.

With cotton supplies continuously accumulating, the stabilization operations could do little more than temper the decline in price.

FIGURE 7.-Indexes of prices of cotton, industrial securities, and crude rubber, monthly, 1929-30 to

In each of the last three cotton seasons the rate of decline in cotton prices has been less than that of either security prices or rubber prices, as a consequence of the supporting effect of the stabilization operations. The same result is found when cotton prices are compared with prices of many other basic raw materials for indistrial use, sold on speculative markets.

During the past three years, the board financed the removal of nearly 3,500,000 bales from current sales, but underconsumption added 10,000,000 bales to the unused supply, or 6,500,000 bales more than the board could handle with its limited resources. The board action did, however, check the price declines temporarily, as is shown in Figure 7. Cotton prices declined only slowly in the fall and winter of 1929, when prices of other raw materials such as rubber, and of securities were plunging downward; again in the fall and winter of 1930 cotton held steady, while the other prices declined; and finally in 1931-32 cotton prices advanced from the fall on through the farmers' selling season, while the other prices continued to decline. While stabilization operations could not maintain prices in the face of con