Mr. CLAYTON. That is right.

Mr. WYLLIE. And so would B be required to meet the clearinghouse requirements on the amount he has transferred?

Mr. CLAYTON. That is right.

Mr. WYLLIE. Therefore that relieves each of the necessity of putting up whatever they would have to put up with the clearing house?

Mr. CLAYTON. That is right.

Mr. WYLLIE. But in any subsequent movement they would be compelled to put up what is required?

Mr. CLAYTON. That is right. I think we have done very little of that. May I ask whether your record discloses that we have in recent years done any of that?

Mr. WYLLIE. It is my information you have.

Senator BILBO. It is the judgment of a majority of the committee that we recess until 10:30 o'clock tomorrow.

(Whereupon, at 4 p. m., a recess was had until tomorrow, Thursday, Feb. 27, 1936, at 10:30 a. m.)

TO INVESTIGATE THE CAUSES OF THE DECLINE OF

COTTON PRICES

THURSDAY, FEBRUARY 27, 1936

UNITED STATES SENATE,

COMMITTEE ON AGRICULTURE AND FORESTRY,

Washington, D. C.

The committee met, pursuant to adjournment, in the committee room, 324 Senate Office Building, at 10:30 a. m., Senator Ellison D. Smith (chairman) presiding.

The CHAIRMAN. The committee will come to order. Mr. Wyllie, you may proceed.

TESTIMONY OF W. L. CLAYTON-Resumed

Mr. WYLLIE. Mr. Clayton, in your testimony you have frequently referred to what you have termed the "Farm Board squeeze" in May 1930. Do you happen to know how much cotton the Farm Board acquired for that squeeze?

Mr. CLAYTON. I call it a corner.

Mr. WYLLIE. Well, call it a corner, then.

Mr. CLAYTON.. And it had to do with 2 months, May and July 1930, and the total number of bales that the Farm Board received on those 2 months was about 750,000 bales.

Mr. WYLLIE. In the futures market?

Mr. CLAYTON. Yes.

Mr. WYLLIE. And the effect of that operation was to carry May and July considerably above all other months?

Mr. CLAYTON. Yes; and considerably above spot cotton in the South.

(Senator Thomas took the chair.)

Senator FRAZIER. I would like to ask what the effect of that cornering the market was at that time, by the Farm Board.

Mr. CLAYTON. Senator Frazier, I have here a prepared statement which the chairman said I might introduce into the record at some time during the proceeding. It is divided into sections. Section 1 dealt with the break in the market on the 11th of March 1935. Mr. WYLLIE. That has already been read into the record. Mr. CLAYTON. That has been read into the record.

Section 2 deals with the Farm Board corner. It has been prepared on the basis of information, data which I collected at the time this corner was in progress. It sets out in detail the effects of the

corner.

Senator NORRIS. That is the corner in May and July?

Mr. CLAYTON. 1930; yes, sir. I would respectfully request that I be permitted at this time to present that section of my statement, Mr. Chairman, which deals with that subject.

Mr. WYLLIE. Now, Mr. Chairman, before we get into that, we are simply undertaking to ascertain from Mr. Clayton at this time what was the extent of the Government operations in May and July 1930. Before getting into that I want to go back to the year previous and deal with the operations carried on by Mr. Clayton, his firm, in 1929. I think if we proceed in a chronological, orderly fashion it will be more intelligible to the members of the committee, showing how one thing flows out of another.

Mr. CLAYTON. Mr. Chairman, Senator Frazier has asked me a very pertinent question. I have given the subject a great deal of study. My firm was more affected than any other single firm by that operation. I collected, as I have said, a great deal of data on the subject at the time the operation took place. I think I am in a peculiarly favorable position to outline the effect of it, which Senator Frazier has inquired about. I can't do it unless I have reference to my data, and it would not take very long, and I respectfully represent, Mr. Chairman, that this is the proper time to introduce that statement.

Mr. WYLLIE. Mr. Chairman, the regular chairman, Senator Smith, has already ruled that Mr. Clayton may at the proper time be permitted to offer this statement, but not until the examination has been concluded.

Senator FRAZIER. Mr. Chairman, I do not want to break into your regular program of investigation, but I would like to have an answer sometime during the hearing, and if it can be put in later that is perfectly satisfactory to me.

Mr. CLAYTON. I am very anxious to answer it, Senator Frazier.

Mr. WYLLIE. And the witness, Mr. Clayton, will be given an opportunity to put anything pertaining to the subject into the record after we have completed what seems to me to be the more important phases of the hearing with respect to his operations.

Mr. CLAYTON. The only thing, Mr. Chairman, is that Senator Frazier might not be present at that time. I was permitted to introduce into the record the first section of my statement, which had to do with the March 11 break, and I do think that it is the proper time to present the second section, which has to do with the subject you are now discussing.

Mr. WYLLIE. Mr. Clayton, don't you think the chairman has already ruled on that?

Mr. CLAYTON. The chairman only ruled to this effect, as I think the record will show, that I would have an opportunity-he did not say when, but I would have an opportunity-to present my statement, and I have been given the opportunity to present the first section of it, which has been done, at the time when it was apropos of the discussion at that moment, and it seems to me that the second section should go in now.

Senator NORRIS. Mr. Chairman, might I suggest there, I think it is admitted on all sides that this statement ought to be in and that Mr. Clayton ought to have the privilege of putting it in, but, on the other hand, here is Mr. Wyllie, who has charge of the investigation, and if he wants to lead up to it by some other questions, I think that

is proper and that he ought to be permitted to decide the order in which this evidence should go in.

Senator THOMAS (presiding). Let me say that the regular chairman, Senator Smith, is away temporarily, and until he returns I would not feel like making a ruling, for the reason that I am not thoroughly familiar with the rulings that have been made to date. As a member of the committee I would state that I would favor Mr. Clayton being permitted to make any statement that he sees fit, and put in any data that he sees proper before he finally leaves the stand and before the investigation is concluded.

Mr. WYLLIE. Now, Mr. Clayton, you are familiar with the operations carried on by your firm during the early part of 1929, are you not?

Mr. CLAYTON. I am. It has been 6 years ago, nearly 7 years ago, but I am familiar with the general policy at that time.

Mr. WYLLIE. That would not be so soon forgotten, would it?

Mr. CLAYTON. No; I have not forgotten our general policy and what effect it had on the operations.

Mr. WYLLIE. Well, have you sufficient figures and data before you to follow me in the course of my questions concerning your operations during that period? That is, my figures and questions will relate generally to your operations.

Mr. CLAYTON. I am not sure that I have, Mr. Wyllie, but I assume you have gotten up these figures from our books.

Mr. WYLLIE. Would you care to have a copy of our record before you while I carry this on?

Mr. CLAYTON. Yes; I would. [Mr. Wyllie handed a book to Mr. Clayton.]

Mr. WYLLIE. On page 1-I might state that all of the figures and data contained in this folder which you have before you, and which is marked "Anderson, Clayton & Co. No. 2", were obtained from the records of your firm and have been compiled and tabulated by our organization.

On December 31, 1928, your position appears to be short 138,100 bales of spot cotton. At that time you had a long interest, net interest, in New York and Liverpool and Havre, and a short interest in New Orleans, Chicago, and Bremen. That is correct, is it not?

Mr. CLAYTON. That is what these figures show; yes, sir.

Mr. WYLLIE. I will say at this time, Mr. Clayton, you are of course at liberty to correct any of these figures if you see they are in error. On December 31 you had a long interest in January, New York of 239,100 bales of cotton.

Mr. CLAYTON. Mr. Wyllie, may I just interpose here to make the statement that when you speak of "long" and "short", you do not wish to give the impression that we were long or short the market any such number as your figures indicate?

Mr. WYLLIE. You were long of futures, conversion sales-long or short futures, conversion sales, net open calls, all of which had to do with the New York market?

Mr. CLAYTON. Yes; but my point is that you don't wish to give the impression that we had a market interest of any such number of bales as you have indicated?

Mr. WYLLIE. You had an offsetting interest but you certainly had a market interest to that extent.

Mr. CLAYTON. No; not a market interest as concerns the general market for cotton, the general price level of cotton. We may have had an interest long in one market but we were short in other markets to offset it, so that so far as the market interest was concerned it was balanced. Is that not correct?

Mr. WYLLIE. I will concede, Mr. Clayton, that your futures market interest, coupled with your spot market interest, were practically in balance at all times.

Mr. CLAYTON. In other words, you have not found from your investigation of our records and books that we at any time had a specultive interest in the markets.

Mr. WYLLIE. I would not say that, Mr. Clayton. I say that you have a balanced interest in the markets. In other words, we found that whenever you had a large futures interest or any futures interest you either had spots or other futures to offset them.

Mr. CLAYTON. Yes. So that, so far as the general market level was concerned, we had no interest.

Mr. WYLLIE. Frequently we find, however, and in practically every instance, you had future interests in one market offset by future interests in the same market in different months or in different markets. Mr. CLAYTON. But so far as the general price of cotton was concerned, that was an offset of the market interest.

Mr. WYLLIE. An offset of the position.

Mr. CLAYTON. Yes; an offset of market interests, and as long as we had longs and shorts in balance, whether of futures or of spots, or futures on one side and spots on the other, we had no interest in whether the market went up or went down.

Mr. WYLLIE. I will concede that your market interests were practically in balance at all times, so far as positions are concerned.

Now, to resume-I am taking now the course of transactions in January deliveries, 1929, New York, comparing with your position of July deliveries short in New York. I have taken the 11:45 bids on the New York Cotton Exchange as the criterion to determine the number of points over or under the months under comparison. I would now like to proceed with calling your attention to these figures, after which I would like to get some expressions of opinion from you as to why you carried on these operations and what was the effect of them.

To go back, on December 31 you had a long interest, 239,100 bales, in January New York, and at the same time had a short interest in July New York, 428,500 bales, at which time January was selling 31 points over July.

On January 5 your short interest in New York had increased to 437,400 bales; your long interest in January had decreased to 140,600 bales; and at which time January was 27 points over New Yorkselling over July.

On January 10 your July short interest in New York was about the same, to wit, 437,000, and your long interest in January had decreased to 87,500 bales, and January was selling 26 points over July.

On January 15 your short interest in July had increased to 442,400 bales and your long interest in January had decreased to 55,000 bales, and January was 28 points over July.