Dr. HORNE. This includes cotton and all the other leading classes of textile fibers. These are listed in the chart. We have converted all the other fibers into equivalent bales of cotton, so that we can think of them from the cotton standpoint. The figures are all seasonally adjusted and are plotted for each calendar quarter, beginning at the first of 1955 and extending through the first quarter of 1963, which appears outside this chart frame on the right. Please notice how the textile operations of this country go up and down in cycles. The textile cycle is a very real thing, and it can make the cotton situation quite confusing indeed unless we recognize its meaning. The textile cycle has some tendency to go up and down in harmony with the general business cycle of this country, and it reflects big shifts in inventories of textile products held beyond the spinning level-all the way from the mills right down to the retail counter. The big thing to notice particularly at this time is that since the first of 1961 the main direction of the textile cycle, like general business, has been upward—a big net rise in the level of operations. But our concern is with asking what part of this textile market was held by cotton, and this is apparent if we examine the lower curve in chart 2. This chart has a vertical line marking off the periods before and after January 1, 1961. Down through the year 1960, cotton's share of this whole market was holding up very well. It was actually higher in 1960 than in 1959. We were doing pretty well in our com But then we do have to face what has happened since the first of 1961. The rising cycle has carried the whole thing up very strongly, you see; but our share has dropped so badly that cotton has had no net increase at all across this recent period. Cotton's share has dropped from 55 percent in the last quarter of 1960 to 462 percent in the first quarter of 1963. Since the end of 1960, the other fibers have had an increase in consumption equal to 2,652,000 bales of cotton in annual rate, while cotton has actually had a relatively small decline, 52,000 bales. If cotton had had no competitive loss-if we had held the same share of the market throughout this recent period-cotton would have received more than half of this increase-55 percent of it. Cotton consumption in the first quarter of 1963, instead of being down from the last quarter of 1960, would have been about 111⁄2 million bales higher, and the consumption of the other fibers the same 112 million lower. In other words, we have had a straight competitive loss of 112 million bales in a little over 2 years. That is a staggering fact, I submit, gentlemen. There is no precedent in history for any such terrific competitive loss in the field of fibers over such a period of time. The pain of it has been eased temporarily, and the picture confused, by the sharp rise in the cycle-that is why consumption this season may still hold up to about 8.3 million bales. But these cycles have to go down as well as up. At this rate of competitive loss our market is being rapidly destroyed, and the whole basis of our cotton economy undermined. What is the cause? The big change since the first of 1961 has been in the relative prices of cotton and other fibers. We just have to face that. Let me illustrate by taking the fiber with which we have the closest price competition—rayon staple. Chart 3 presents an analysis of our competition with the rayon staple which is cut up into lengths like cotton and spun into yarn right on our own cotton system. Dr. HORNE. The bars at the bottom of the chart show the percentage of the fiber consumed on the cotton system which is rayon. This is given by calendar quarters, again for the period beginning with 1955 and extending through the first quarter of this year, 1963. Again there is a vertical line marking off the first of 1961. Down to that time, rayon's percentage of this market was not increasing but was showing some decline. But from that time forward, rayon has just swept into our markets. From the end of 1960 to the first of 1963 this one fiber has had a direct competitive gain of almost half a million bales from us in annual rate of consumption on our own spinning system. And just look at the record of these prices across the same period. The two curves in chart 3 give the prices as they are commonly quoted for Middling Inch cotton and for standard rayon staple. In the spring of 1960 the rayon people lowered their price 4 cents a pound. But in the face of this, early in 1961, the cotton support price on cotton was set at a level which caused the market price to rise sharply, so that the spread between the two prices has been wider, very much wider you see, during the past 2 years than ever before. This is clearly what has caused the sharp competitive gains for rayon. Sources: 1958 1959 1960 1961 0 1962 Consumption computed from monthly data of U. S. Department of Prices - for cotton (average on designated spot markets), U. S. Department of Agriculture. For rayon staple, Textile Economics Bureau through July, 1959; industry sources thereafter. Now the rayon producers, enjoying this very strong market, have naturally raised their prices a bit, but not enough to make much dent in the big price advantage which they hold. Two of the three main domestic suppliers have raised their price to 27 cents The prices shown in chart 3 are given as they are commonly quoted, but they do not fully reflect the difference in actual cost to the spinning mill. There is a much higher waste factor in manufacturing cotton textiles than rayon. The price shown for rayon includes transportation to the consuming plant, while the cotton price is the average at the 15 official spot markets across the Cotton Belt. There are important differences in the prices charged for the various qualities of cotton. We have to take all of these things into account in figuring the actual cost of one fiber or another to the spinning mills that must make a decision whether to spin one or the other. This is a complicated problem to work out in detail for all the fabrics involved, but we made all these calculations back in September 1959 and found that rayon's average advantage in net cost to the mill was 6.3 cents per pound in 1959 of cloth manufactured. We could live with that because cotton had the quality to overcome that much difference. But we made these computations again last July and found that the average advantage of rayon had risen to 14.9 cents a pound. And we cannot live with that. Every textile man faced the fact that he from cotton to rayon, and you seen in chart 3 how fast they have been leaving cotton for this fiber. The Agricultural Act of 1958 was passed in August of that year. The first announcement of a lower support price for cotton under that act was made in January 1959. And from that time till the middle of 1960 (note chart 3) cotton made the biggest gain it has ever made against rayon. The big cut in the price of rayon caused that fiber's losses to be checked after mid-1960, but rayon made little or no comeback against us, because the price of cotton was still coming down, and moreover there was a widespread confidence in the textile industry at that time that the cotton farmer and the Government meant to be realistic about what price it took to hold markets. Then in early 1961 the new support price for cotton was announced. Chart 3 shows what then happened to cotton's market price and to its competitive position against rayon. I do not know, Mr. Chairman, how cause and effect can be made plainer than that. The cause of the trouble was partly that the price was raised so many cents a pound; but more important, it was that the whole atmosphere of confidence about cotton's serious chances to be competitive was undermined. This confidence has to be restored if cotton is to survive. The present situation is damaging to cotton in all our marketsliterally all of them. Cotton has about 400 important end use markets, and our market research staff makes a diligent effort to keep up with what helps or hurts cotton in every one of them. I want to show you the share or percentage of some end use markets that were held by cotton in 1955, 1960, and last year, 1962. Chart 4 shows the net change between 1955 and 1956 for five large uses in which we were losing markets even in that earlier period. Well, then, if we were losing markets like this, why didn't total mill consumption decline in that period? Dr. HORNE. The reason is that there were other big uses in which we were gaining from our competitors, and in chart 5 I illustrate with five of those. The gains offset the losses, you see. And in addition there were some other big markets our "backbone markets" we call them-that were just dominated by cottonalmost 100 percent. Some leaders of this group are shown in chart 6. In chart 7 we put all 15 of these big end use markets together. Down to 1960 cotton's share was rising in some and falling in others, with gains offsetting losses and keeping cotton's overall percentage of the textile market up to a fairly constant level. But from 1960 to 1962, when the one big, important change was in the price situation, we get a very different picture. We see no crisscrossing of lines here. They all go in the same direction-all downward. Cotton lost everywhere. Our market research staff did not find 1 significant gain for cotton in 1962 among the 409 end uses that they surveyed. The domestic market for cotton is being undermined, destroyed by the present price situation. I certainly hate to give that kind of report, but I have the duty to give you the facts. Sources: 1957 1958 1959 1960 1961 0 1962 Consumption computed from monthly data of U. S. Department of Prices Now the rayon producers, enjoying this very strong market, have naturally raised their prices a bit, but not enough to make much dent in the big price advantage which they hold. Two of the three main domestic suppliers have raised their price to 27 cents The prices shown in chart 3 are given as they are commonly quoted, but they do not fully reflect the difference in actual cost to the spinning mill. There is a much higher waste factor in manufacturing cotton textiles than rayon. The price shown for rayon includes transportation to the consuming plant, while the cotton price is the average at the 15 official spot markets across the Cotton Belt. There are important differences in the prices charged for the various qualities of cotton. We have to take all of these things into account in figuring the actual cost of one fiber or another to the spinning mills that must make a decision whether to spin one or the other. This is a complicated problem to work out in detail for all the fabrics involved, but we made all these calculations back in September 1959 and found that rayon's average advantage in net cost to the mill was 6.3 cents per pound in 1959 of cloth manufactured. We could live with that because cotton had the quality to overcome that much difference. But we made these computations again last July and found that the average advantage of rayon had risen to 14.9 cents a pound. And we cannot live with that. Every textile man faced the fact that he |