Mill consumption of cotton and manmade fibers: Percent change from year earlier, foreign free world, 1951-62 Compiled from data from International Cotton Advisory Committee Special base book issue, CottonWorld Statistics, April 1963. The CHAIRMAN. Now, going back to S. 1458, which I introduced by request, as I understand, the purpose of that bill is to make cotton competitive abroad. Mr. MURPHY. More competitive. The CHAIRMAN. I mean more competitive. Mr. MURPHY. At home. In this country, particularly. The CHAIRMAN. Yes; and by decreasing the cost to the manufacturer. Now, I notice here a table where in exports, when cotton was 31.74 cents in 1959-60, the export was 7.2 million bales. When cotton was 30.25, it went down to 6.6 million bales. Then when it was up to 33.54, it got down to 4.9 million bales. And the latest estimate is 4 million bales. How do you account for that? Do you think that since the objective is to put us back on world prices, don't you think S. 1458 would stand as good a chance as any of these bills in attaining that goal? Mr. MURPHY. Mr. Chairman, the world The CHAIRMAN. And if you don't think so, let us know why. Mr. MURPHY. The world price or the export price on American cotton is not directly related to the domestic price and has not been since the mid-1950's. For example, this is recognized in S. 1458, by providing that bill provides that there shall be an export subsidy of not less than 61⁄2-cents a pound unless it develops that such a subsidy would result in greater exports than during any of the past 10 years. Now, this would mean something in excess of 7,600,000 bales, which I believe, is the highest export figure in the last 10 years. So this subsidy probably woud be 61⁄2 cents a pound, which would make the export price of American cotton between 23 and 24 cents, while the domestic price is about 30 cents. This is not a very different export price from the one that we have at the present time. The price has been around 24 cents a pound for export purposes. We have had a 321⁄2-cent support price on Middlinginch cotton and an 81⁄2-cent subsidy, which brings this price down to 24 cents, if you are not taking into account the carrying charges. Any of these proposals that we have examined here and all of these estimates that we have made contemplate an export price at about the same level, in this range, from 23 to 24 cents. Mr. MURPHY. About the prevailing price in world markets. The CHAIRMAN. And yet, notwithstanding that, I wish to point out again, the decrease in the consumption of cotton abroad by the trade has been gradually decreasing. That is what I can't quite Senator JORDAN. Mr. Chairman, it has been decreasing in American cotton but not in cotton. Mr. MURPHY. The actual consumption in cotton in the foreign free world is down this year. During the time when American cotton was sold under export sales programs, large amounts in foreign inventories were built up. During the last couple of years these inventories have been drawn down. This has been accompanied by an increase in cotton production in the foreign free world and also by a decline in consumption in the foreign free world. All of these things combined are going to bring our exports this year to a quite low figure. Some people speak as if this all were due to price. This is by no means true. All of these other elements have at least as much effect in my judgment as price. I think it is generally recognized that if we lower the price of American cotton in the world market, there is a tendency for the price of cotton produced in other exporting countries to fall until it stays just below us, and this might very well get us into a situation where it is like a dog chasing its tail and you can never catch up. The lower we make our price, the lower they make their price. If I may say, Senator Talmadge, you spoke earlier about the share of the world market we had in 1932. If we have got to get it at the price we got for cotton in 1932, I am not for that. I think all of us would agree. So I think we have to be careful to guard against this kind of endless escalation downward in the price of our cotton. We have recently started an export sales program under which we are selling cotton for export during the coming marketing year. Cotton under that program is being made available at a very favorable price, a lower price that it has been made available for export heretofore in recent years. We hope and believe that this will move substantial amounts of cotton into the export trade during the coming year. Senator JORDAN. Isn't that about 9% or 10 cents difference between our market and the present export subsidy? Mr. MURPHY. If I understand the question, Senator, the answer is "Yes." We would regard the present prices under that program as the equivalent of an export subsidy of between 9 and 10 cents. Senator JORDAN. Which further aggravates the spread between the domestic price of cotton and the foreign Mr. MURPHY. That is true. Senator JORDAN (continuing). Goods coming back in here. Mr. MURPHY. That is true, and any means you take to lower the export price of cotton will have that result unless you at the same time lower the domestic price. Senator JORDAN. That is correct. Mr. MURPHY. And I would like to say once again that we look with great reluctance on lowering the price that the farmer gets for his cotton, especially small farmers. Senator JOHNSTON. So we are facing foreign countries producing more cotton which in all probability will lower the price of cotton Mr. MURPHY. Well, I think we are faced with the probability of them producing more cotton. Whether or not it has the effect of lowering the price on foreign markets depends very greatly on the pricing policies we follow in this country. Senator JOHNSTON. There is another question that comes to mind, too. The shipping of cotton. How much does it cost to ship a pound of cotton on the average, say, to Japan? Mr. MURPHY. We did some work on this some months ago, Senator. It depends on the point of origin in this country as well as the point of destination in Japan. We tried at that time to get at the advantage which the foreign mill or the domestic mill might have by reason of differences in transportation costs and other closely related factors such as commissions and insurance that are involved in the acquisition of cotton. You can only do this by looking at a great many different particular locations in this country and abroad. Our preliminary work indicated that this difference would be in the range between 1 and 2 cents, perhaps in the neighborhood of a cent and a half a pound. And this was an advantage to the domestic mills on the average. Senator JOHNSTON. So the foreign countries may buy from a closer market to them than the United States even though we sell to them at the world market. Mr. MURPHY. They would buy at the market where they could get it at the lowest price. Senator JOHNSTON. So we have got to look into that, too, as we go along, don't you think so? Mr. MURPHY. Yes, sir. We certainly have to. The CHAIRMAN. Mr. Murphy, again reverting to S. 1458, introduced by me by request Mr. MURPHY. Yes, sir. The CHAIRMAN. According to the figures presented to me by you, under S. 1190 the disappearance would be 14.2. Under S. 1511 and H.R. 6196-that is the House bill-the disappearance-this appears to be 14.8 and the cost of those two would be respectively $667 million for the former and $729 million for the latter. And then when you come to the 1458 bill, the disappearance would be 14.3 and the cost is only 446.4. Now, how can you say there is no merit to those bills-to that bill? Mr. MURPHY. Well, there are two particular difficulties that we have with that bill, Senator. Perhaps I should say The CHAIRMAN. I am just trying to develop all the bills before me now. That is the purpose of that question. acres. Mr. MURPHY. Perhaps I should say three. As you will recall, S. 1458 provides a minimum national acreage allotment of 17.5 million You have to add 150,000 to 200,000 acres to take care of the small farmers, the so-called acreage reserve. Now, when you allow for the increased consumption that we estimate would come from this much of a reduction, 22-, 3-cent reduction in the domestic price of cotton, we still estimate that the carryover would be increased from 11 to 11.5 million bales the first year and increased by another 300,000 bales the second year. So here we are building an additional-we are building additional stocks of cotton that we would not know what to do with, and the difficulties of disposing of that cotton are not reflected The CHAIRMAN. Now, why is it that under 1511 and H.R. 6196 you estimate production at 13,700,000 bales, and under S. 1458 you estimate 14,500,000 bales? Mr. MURPHY. Because the acreage allotment would be smaller under S. 1511. This is the critical difference, Senator. Under S. 1511 there is no increase in the statutory minimum acreage allotment. It would remain 16 million acres. The CHAIRMAN. And you would leave it remain at that, Mr. MURPHY. Yes, sir. Senator JORDAN. Under this bill. Mr. MURPHY. Yes. The CHAIRMAN. No, no. Under the-under S. 1511. The CHAIRMAN. Oh, yes. Your bill-excuse me. Mr. MURPHY. And the statutory acreage statutory minimum acreage allotment would continue to be 16 million acres. Now, S. 1458 would increase that by a million and a half acres, and according to our best estimates or guesses at this time, this would result in the production of more cotton than would be consumed and an increase in the carryover. Senator JORDAN. Yes. The CHAIRMAN. What about the provision to permit the planting of 30 percent more cotton for world consumption. Wouldn't that increase the production? Mr. MURPHY. That is not mandatory in the bill or in any proposal that we have made. This is acreage which the Secretary of Agriculture could permit to be planted if, according to the estimate when the allotment is fixed, production of cotton on these export acres would not increase the carryover or would result in a drawdown. The CHAIRMAN. And you do not make allowances for any amount of acreage that may be taken advantage of by virtue of that 30 percent provision. Mr. MURPHY. Yes, sir; we do. We do. The CHAIRMAN. And not withstanding that, your production would be 11 million-13.7 million? Mr. MURPHY. If I may refer particularly to this column 5, having to do with S. 1511; S. 1511 does not at the present time have in it any provisions for the so-called export acreage. This column is based on an assumption that the acreage allotment actually fixed would be 500,000 acres above the statutory minimum and that on this acreage there would be produced some, oh, around 600,000 bales of cotton, as I recall. If the bill were amended to provide export acres and we estimated that the supply-and-demand situation would be the same, then instead of fixing the acreage allotment at 16.5 million acres, I would expect that the acreage allotment would be fixed at 16 million acres and then enough plantings on export acres would be permitted to produce an estimated 500,000 or 600,000 bales of cotton, so that this 500,000 or 600,000 bales of cotton would be produced on the export acres instead of being produced under the national allotment. That means it would be produced at the world price and not at the higher support price. Now, if I may comment further, Senator, in response to your question Mr. MURPHY. Well, I think we are faced with the probability of them producing more cotton. Whether or not it has the effect of lowering the price on foreign markets depends very greatly on the pricing policies we follow in this country. Senator JOHNSTON. There is another question that comes to mind, too. The shipping of cotton. How much does it cost to ship a pound of cotton on the average, say, to Japan? Mr. MURPHY. We did some work on this some months ago, Senator. It depends on the point of origin in this country as well as the point of destination in Japan. We tried at that time to get at the advantage which the foreign mill or the domestic mill might have by reason of differences in transportation costs and other closely related factors such as commissions and insurance that are involved in the acquisition of cotton. You can only do this by looking at a great many different particular locations in this country and abroad. Our preliminary work indicated that this difference would be in the range between 1 and 2 cents, perhaps in the neighborhood of a cent and a half a pound. And this was an advantage to the domestic mills on the average. Senator JOHNSTON. So the foreign countries may buy from a closer market to them than the United States even though we sell to them at the world market. Mr. MURPHY. They would buy at the market where they could get it at the lowest price. Senator JOHNSTON. So we have got to look into that, too, as we go along, don't you think so? Mr. MURPHY. Yes, sir. We certainly have to. The CHAIRMAN. Mr. Murphy, again reverting to S. 1458, introduced by me by request Mr. MURPHY. Yes, sir. The CHAIRMAN. According to the figures presented to me by you, under S. 1190 the disappearance would be 14.2. Under S. 1511 and H.R. 6196-that is the House bill-the disappearance this appears to be 14.8 and the cost of those two would be respectively $667 million for the former and $729 million for the latter. And then when you come to the 1458 bill, the disappearance would be 14.3 and the cost is only 446.4. Now, how can you say there is no merit to those bills-to that bill? Mr. MURPHY. Well, there are two particular difficulties that we have with that bill, Senator. Perhaps I should say The CHAIRMAN. I am just trying to develop all the bills before me now. That is the purpose of that question. Mr. MURPHY. Perhaps I should say three. As you will recall, S. 1458 provides a minimum national acreage allotment of 17.5 million acres. You have to add 150,000 to 200,000 acres to take care of the small farmers, the so-called acreage reserve. Now, when you allow for the increased consumption that we estimate would come from this much of a reduction, 22-, 3-cent reduction in the domestic price of cotton, we still estimate that the carryover would be increased from 11 to 11.5 million bales the first year and increased by another 300,000 bales the second year. So here we are building an additional-we are building additional stocks of cotton that we would not know what to do with, and the difficulties of disposing of that cotton are not reflected |