There was excepted from the cotton handled by the American Cotton Cooperative Association approximately 75,000 bales of longstaple cotton, for the marketing of which the Secretary of Agriculture contracted with W. M. Garrard, of Greenwood, Miss., general sales manager of the Staple Cotton Cooperative Association. Mr. Garrard had specialized for more than 10 years exclusively in the marketing of this type of cotton, and was especially qualified. Under his contract he has disposed of the 15,497 bales of actual cotton, sale of which was referred to above.

Under the agreement between the Secretary of Agriculture and the Government of the Farm Credit Administratisn regarding the acquisition and transfer of cotton, the Secretary engaged to pay the Farm Credit Administration 5 cents a pound on all of the actual cotton to be acquired from the latter.

FINANCING THE TRANSACTIONS

To meet the expense involved in the 5-cents-a-pound payment, and to provide funds for paying expenses incident to carrying and handling the cotton, there was borrowed from various New York banks an aggregate of $30,000,000 at an interest rate of 2, 2%, and 11⁄2 percent per annum. Also $3,300,000 was borrowed from the Reconstruction Finance Corporation at an interest rate of 12 percent per annum. The proceeds of these loans covered the original cost to the Secretary of Agriculture of approximately 1,128,808 bales of actual cotton. At the time of acquisition of this cotton the market base price was 91⁄2 cents per pound, subject to additions or subtractions of premiums or discounts resulting from grade, staple, or location of the cotton. To take care of this difference and to reimburse the Farm Credit Administration for the loss which would have been sustained by it upon the sale of the cotton for 5 cents, the Secretary of Agriculture, acting in conjunction with the Governor of the Farm Credit Administration, applied to the President for an allocation of funds from the appropriation made in section 220 of the National Industrial Recovery Act, commonly referred to as the Bankhead fund. This allocation, in other words, was to make up the difference of 42 cents a pound between the market price of 92 cents and the payment of 5 cents already arranged for.

Subsequently the President, by successive Executive orders, allocated a total of $60,000,000 from the Bankhead fund to the revolving fund of the Farm Credit Administration, for use in adjusting accounts between the Secretary of Agriculture and the Farm Credit Administration in connection with the acquisition of cotton and cotton futures.

V. LOANS ON COTTON AND COTTON OPTIONS

When it became apparent that because of unusually favorable climatic conditions the 1933 cotton crop would exceed all normal expectations and would approximate 13,000,000 bales, the Agricultural Adjustment Administration cooperated with other agencies of the Government in steps to protect the price of cotton. In this connection conferences were held with Members of Congress and other representatives of cotton producers in an effort to devise further plans. As a result of these conferences what has come to be known as the "10-cent loan program" was formulated. This program provided

for lending cotton producers 10 cents a pound on the unsold portion of their crop. With the approval of the President, funds for this purpose were made available by the Reconstruction Finance Corporation to a new unit known as the Commodity Credit Corporation. Among the officers and directors of the Commodity Credit Corporation are the Secretary of Agriculture, the Governor of the Farm Credit Administration, and officials of the Reconstruction Finance Corporation.

It was arranged that cotton producers, to become eligible for loans, must agree to participate in the 1934 acreage reduction campaign sponsored by the Agricultural Adjustment Administration. Producers who obtained loans have been charged 4 percent interest. The notes mature July 31, 1934, but the Commodity Credit Corporation expressly reserves the right to call the note at any time when the price of middling %-inch spot cotton on the New Orleans market, as determined by the Bureau of Agricultural Economics, is at or above 15 cents a pound.

Banks, factors, brokers, merchants, warehousemen, cooperative marketing associations, local lending agencies, and other agencies dealing in cotton throughout the country were invited to make loans on the forms prescribed by and in accordance with the regulations of the Corporation, with the provision that such paper would be purchased by the Corporation at par with accrued interest at any time up to June 30, 1934.

ADVANCES ON OPTIONS

In order that those producers of cotton who had participated in the 1933 program and who had taken options on the Government-owned cotton at 6 cents a pound might be placed on a parity with those producers who were unwilling to participate in the 1933 campaign and who were privileged to borrow 10 cents a pound on cotton they had produced, the Agricultural Adjustment Administration took steps to advance to the holders of options 4 cents a pound against the cotton covered by their respective options. This was an amount equal to the difference between the 6-cent price at which the options had been acquired by the holders and the 10-cent loan value which had been placed on other cotton.

Making loans on the cotton options brought the necessity of new arrangements for the handling of the Government-owned cotton. The Director of Finance was designated as manager of a "cotton pool" created by the Agricultural Adjustment Administration for the purpose of acquiring funds, taking title to the 2,400,000 bales of Government-held cotton covered by the options, and making advances to the cotton farmers, numbering approximately 600,000, who had elected the "option-with-benefit" plan in the 1933 cotton adjustment campaign.

Option holders who desire to obtain the advance are required to execute a document entitled "Exercise of Cotton Option and Pool Agreement." This document directs the Secretary of Agriculture to sell the option holder the cotton covered by the option. Under it, the option holder agrees to the establishment of the cotton pool to which the cotton will be delivered. The manager of the cotton pool is authorized to borrow from the Commodity Credit Corporation 4 cents a pound on the cotton covered by the option.

POOL MANAGER AUTHORIZED TO SELL

The authorization to the manager of the cotton pool includes the right to sell the cotton in the pool at any time the cotton can be marketed on the basis of 15 cents per pound, middling %-inch. After July 31, 1934, the Secretary may, in his discretion, sell and make delivery of all or any part of the cotton, irrespective of the price.

The pool manager is also authorized, under the agreement, "to sell any spot cotton held by the pool and replace said cotton by the purchase of cotton futures contracts covering an equivalent amount of cotton; to sell cotton futures contracts held by the pool and replace the same by the purchase of an equivalent amount of spot cotton; to take delivery of actual cotton under cotton futures contracts held by the pool; to buy or sell cotton futures contracts by way of hedge or for the purpose of fixation of prices of cotton bought or sold pursuant hereto by the manager."

It is stipulated in the agreement that "the manager shall, as soon as practicable, distribute to the optionee 4 cents per pound or $20 per bale upon the cotton covered by the option" and "shall issue to the optionee a participation trust certificate in said pool in a form to be approved by the Secretary.'

The option holders who obtain the 4-cent advance also are required "if eligible and if requested to do so" to execute the 1934-35 cotton acreage adjustment contract.

FINANCIAL ARRANGEMENTS MADE

Financial arrangements for acquiring and carrying the cotton were made by the negotiation of a line of credit with the Chase National Bank and the Guaranty Trust Co., both of New York City, for a maximum of $73,000,000, or 6 cents per pound on all actual cotton acquired by the Secretary of Agriculture. This loan was to bear interest at the rate of 1% percent per annum, interest payable at maturity of the obligation. The obligation was to be evidenced by notes of the Secretary of Agriculture, drawn to mature July 1, 1934, and to be secured by the pledge of the cotton acquired and to be acquired by the Secretary of Agriculture.

To supplement the fund borrowed from the banks, the Director of Finance, in his capacity as manager of the cotton pool, arranged a credit line with the Commodity Credit Corporation for a maximum of $48,000,000. This loan was to be evidenced by the note or notes of the manager of the cotton pool, drawn to mature July 1, 1934, and drawing interest at the rate of 4 percent per annum, interest payable at maturity of the note. The loan was secured by the pledge of the cotton to be delivered by the Secretary to the pool manager in connection with the program for advancing 4 cents per pound to the holders of cotton options.

The 10-cent loan program has resulted in total advances of $53,580,880.22 up to January by the Commodity Credit Corporation, while the loans made by banks and still held by them were estimated at between $50,000,000 and $60,000,000. Through the arrangements for the 4-cent advance on options, farmers have received or will receive a total of approximately $48,000,000.

VI. RESULTS OF 1933 PROGRAM

Official estimates of the Crop Reporting Board of the Department of Agriculture indicate that the total income received by the South from the cotton crop of 1933, including rental payments and potential option profits, is more than twice the income received from the crop of 1932.

The figures upon which this calculation is made include the farm value of lint cotton for the 1933 season, estimated at the December 1 price to be $617,716,000, as compared with $371,861,000 for lint cotton in 1932. In addition, rental payments totaling $112,000,000 and option profits totaling $48,000,000 have been or are being distributed. The farm value of cottonseed in 1933 has been calculated at $79,532,000 compared with a value of $53,627,000 for seed in 1932. Thus the combined farm value of the 1933 cotton crop, plus the total rental payments and the profits from options, is $857,248,000, as compared with $425,488,000, the value of the cotton crop in 1932.

Chart 4.-Farm and Parity Prices of Cotton and Benefit Pay

The significance of these figures becomes apparent if one reviews the situation which would have prevailed if the Government had not intervened on behalf of the cotton growers. The world carryover of American cotton on August 1, 1933, amounted to 11,600,000 bales, making a total supply for the year 1933-34 of 24,800,000 bales, or 1,200,000 bales less than the record supply of the previous year. Had the Government not acted to reduce the 1933 crop acreage, the supply as of December 1 would have been 29,200,000 bales, or approximately 3,000,000 bales greater than the previous year's supply. Many observers are of the opinion that if this had happened, the price would have ranged around 5 cents with little or no market. That would have meant utter economic disaster throughout the Cotton Belt. This was not only averted, but the price increased from the low level of 1932 to a probable average of 92 cents for the 1933 crop. Prices received by producers averaged 8.8 cents per pound in August and September, 9 cents in October, and 9.6 cents in November and December, compared with 5.4 cents per pound in December 1932.

41746°-34- 4

PLOW-UP CAMPAIGN BROUGHT HIGHER PRICE

While other factors have had an influence, especially the monetary policy, the price is undoubtedly affected to a marked degree by the success of the plow-up campaign which took 4,400,000 bales out of a potential crop of 17,600,000 bales. Had the full crop been harvested and the price fallen to 5 cents a pound, the value would have been $440,000,000 instead of the $617,716,000 now estimated. Furthermore, the reduction in acreage lowered the cost of production of the 1933 crop, so that the net returns to producers show an even greater increase than is indicated in their gross return.

The increased returns of the cotton growers have been reflected in a remarkable improvement in business conditions throughout the Cotton Belt. Bank clearings in Atlanta, Ga., during the last week in November were 43 percent higher than during the same week in 1932, and in Dallas, Tex., they were 43.6 percent higher, whereas for the country as a whole the increase was only 17 percent. For the week ending November 16, 1933, there were but 30 business failures in the South Atlantic and South Central States as compared to a total of 93 for the week ending November 17, 1932. As perhaps a more definite indication of the influence of improved conditions upon urban business, there was a continuous loss in electric meters, gas meters, and telephones in Atlanta in June. In July there was a gain of 47 gas meters. Increased installations ranged from that figure to 908 in October. There was a gain of 48 telephones in August, 600 in September, and 400 in October. In the case of apartment houses, vacancies stood at 28 percent as of February 1, 1933. On October 10, the percentage of vacancies was 18.

INDIRECT BENEFITS OF PROGRAM

In addition to adjusting the cotton supply situation and the resultant improved condition throughout the Cotton Belt, the 1933 cotton acreage reduction program had other results of far-reaching significance. The program resulted in the material reduction of cottonseed products which compete with products of the Corn Belt and other agricultural areas. The cottonseed oil in the 4,400,000 bales of cotton that were prevented from maturing would have amounted to over 612,000,000 pounds. This is equivalent to the lard from approximately 20,500,000 200-pound corn-fed hogs, or roughly, 40 percent of the lard produced in 1932 under Federal inspection. The cottonseed meal produced from the seed plowed under would have amounted to approximately 1,954,000 tons. This amounts to more than the total annual production of linseed meal, and on a pound-forpound basis is equivalent to over 31,000,000 bushels of corn. The hulls plowed under are equal to 549,000 tons of wild hay.

VII. PLANS FOR 1934 AND 1935

Although the 1933 cotton acreage reduction program prevented a major disaster and gave material relief to cotton growers, the supply of cotton is still excessive and cotton prices are still below parity with prices of other commodities. In order to correct this situation, a program has been formulated calling for a reduction in 1934 of 40 percent from the 1928-32 average planted acreage, and making it possible, if necessary in 1935, to bring about a reduction of 25 percent.