III. THE 1935 PROGRAM

When the 1935 program was developed, total world supplies of American cotton amounted to 20,365,000 bales for the 1934-35 season, a figure nearer normal levels than it had been at any time during the preceding 4 years.

However, the carry-over of 10,634,000 bales on August 1, 1934, was still excessive, and although it was evident the carry-over would be further reduced by August 1, 1935, it was determined to be to the best interests of cotton farmers to continue efforts to further reduce the carry-over.

Approximately 1,004,000 producers had signed the 2-year contract in 1934. Their total base acreage approximated 38,210,000 acres.

Under these contracts the maximum rate of reduction that could be required in 1935 was 25 percent. One section of the 1934-35 cotton-acreage-reduction contract provided that the contracting producer agree to reduce the acreage planted to cotton on the farm in 1935 by an amount not to exceed 25 percent below the base acreage. Accordingly, on November 28, 1934, the Secretary of Agriculture and the Administrator of the Agricultural Adjustment Act announced that the maximum reduction of 25 percent from the base acreage would be made effective for 1935, and the Secretary of Agriculture signed a proclamation making that rate of reduction effective for all contracts.

REDUCTION BY 35 PERCENT AUTHORIZED

Subsequently, it was decided that producers participating in the program under voluntary agreements would be permitted to rent to the Secretary of Agriculture as much as 35 percent of their base acreage and receive benefit payments thereon.

Giving producers the opportunity to reduce their acreage by 35 percent was for the purpose of continuing the effort to reduce the carry-over, and at the same time permit the contract to be adjusted so as to correspond as nearly as possible with individual allotments under the Bankhead Act.

Producers who did not sign the 2-year contracts early in 1934 will be offered special 1-year contracts covering the 1935-36 season.

PAYMENTS ON SAME BASIS AS IN 1934-35

Under the terms of the contracts covering the 1935-36 season, payments will be similar to those made under the contracts for the 1934-35 season.

An increase of one-fourth cent per pound in the "parity payment" was authorized. Thus the basis of the 1935 contracts is: 32 cents per pound on the average yield for the rented acreage during the base period, 1928-32; and 14 cents per pound on the farm allotment, which is equal to 40 percent of the cooperating producer's average production for the base period, and represents that portion of the national production which ordinarily moves into domestic consumption.

It is estimated that producers will receive a total of approximately 130 million dollars in rental and benefit payments under the 1935 program.

ANTICIPATE 1935 CROP OF 11,500,000 BALES

It was estimated that with the Bankhead Act in effect, and with a program providing for a 35-percent reduction from the base acreage of cooperating producers, including those signing the 1-year contract, a total crop of about 11,500,000 bales could be expected in 1935 with average yields.

This calculation assumed that, because of the offer of 1-year contracts to producers who had not signed the 2-year contracts, the total base acreage would be increased to about 42,210,000 acres.

A 35-percent reduction from this base would leave approximately 27,440,000 acres planted by cooperating producers. If the net reduction of cooperating producers were only 33 percent, the total planted acreage of cooperating producers would approximate 28,280,000 acres.

It was estimated that acreage planted by nonsigners, new lands that might be developed, and additional acreage released through exemptions to producers whose base production is two bales or less would, under the 1935 program, not exceed 3,900,000 acres.

Allowing for these factors and assuming a net 33 percent reduction by cooperating producers, total planted acreage in 1935 would amount to about 32,180,000 acres. With average abandonment this would leave for harvest about 31,410,000 acres. With average yields of 175 pounds of lint per acre this acreage would give a total production of about 11,500,000 bales in 1935.

EXPORTS OF AMERICAN COTTON

In developing the 1935 cotton program the effects of adjustment on exports of American cotton were carefully considered.

There has been a marked decline in cotton exports from the United States since August 1, 1934. In that month exports of cotton were 83 percent of the 10-year August average for 1923-33, and the monthly averages from September to December 1934 ranged from 50 to 60 percent of the corresponding 10-year averages.

On the other hand there has been a smaller decline in foreign consumption of American cotton than in export movement since August 1, 1934. Exports in the 4-month period, August 1 to November 30, 1934, declined 2,055,000 bales, or about 42 percent, from the exports in the corresponding period in 1933. In the same period, estimated foreign consumption of American cotton declined 983,000 bales, or only 23 percent. It is evident foreign mills have been filling part of their current requirements from stocks of American cotton, which had been accumulated in foreign countries.

Three other factors appear to have contributed to the decrease in exports of American cotton since the beginning of the 1934-35 season. They are:

1. Relatively high spot-cotton prices.

2. Reduced dollar exchanges available abroad.

3. Some increase in foreign production of cotton.

Spot-cotton prices, with relation to distant futures, continued high for the first 5 months of the 1934-35 season tending to cause traders and foreign consumers to defer purchases. Reduced production and the withholding of cotton from the market by farmers who obtained a 12-cent loan under the terms of the Commodity Credit Corporation contract combined to support this high level of spot

prices which handicapped the normal merchandising of cotton, during that period.

Reduced dollar exchange abroad has been perhaps the most serious impediment to the usual export movement of cotton.

During the 1933-34 season foreign purchases were facilitated by extraordinarily large shipments of gold to the United States. This and other means of financing cotton exports without accepting corresponding imports appear to be reaching an end.

CURRENCY POLICIES ARE FACTORS

An important factor in the increase of cotton prices and in the export movement of cotton during 1933-34 was the revaluation of the dollar.

Through the revaluations of foreign currencies, foreign countries have likewise increased the prices received by their cotton producers. On the basis of spot prices quoted at Liverpool, which presumably reflect spot prices of cotton in India and Egypt, most of the increases which have occurred thus far in the prices of Indian and Egyptian cotton took effect before the inauguration of the cotton-adjustment program in this country. In fact, the very short staple cottons produced in India under the trade names Bengal and Sind were even lower in December 1934 than during the first 3 months of 1933.

Table 14 shows the percentage changes in Liverpool prices of several descriptions of Indian cotton and Egyptian Uppers from their respective averages for the 7 weeks before September 21, 1931, when Great Britain went off the gold standard, to the average for the first 3 months of 1933, and from the latter period to December 14, 1934. Changes in prices of American cotton are shown for comparative purposes, but since changes in the Liverpool prices do not reflect changes to American growers the changes in prices of American Middling in the 10 spot markets of the United States are also included.

TABLE 14.-Spot-price changes in foreign and American descriptions of cotton at Liverpool, in relation to changes in monetary policies

It would appear that much of the recent increase in foreign acreage may be largely attributed to currency depreciation and previous production decreases in foreign countries, which were not duplicated in the United States until 1933.

RELATION OF U. S. PRODUCTION TO FOREIGN ACREAGE

Although increased prices and reduced supplies of American cotton benefit foreign producers and may have some tendency to increase production and consumption of foreign cotton, the production-control programs in the United States apparently have made no important addition to production and consumption of foreign cottons. Other factors have shown a much more marked tendency to increase cotton acreages abroad.

From the low point reached during the early post-war period, foreign cotton production rose sharply when boll weevil depredations caused short crops and extremely high prices for American cotton. During the 3 years 1928-29 to 1930-31, foreign production of cotton averaged approximately 12,000,000 bales annually. (See figs. 14 and 15.)

During 1931-32, largely because of low yields, and during 1932-33, largely because of reduced acreage and slightly-below-average yields, foreign production averaged only about 10,500,000 bales.

0

90-91 95-96 1900-01 '05-06 10-11 '15-16 20-21 25-26 30-31 '35-36 FIGURE 14.-Cotton production in the United States and in foreign countries

1890-91 to 1935-36

In 1933-34 foreign cotton acreage increased about 9 percent and production increased about 22 percent, reaching a total of approximately 13,000,000 bales. As compared with this increase of 9 percent in foreign acreage the planted acreage in the United States increased 12 percent in 1933.

INCREASES ABROAD PRECEDED UNITED STATES PROGRAM

The 1933 cotton-reduction program in the United States did not get under way until early summer, after increased acreages abroad already had been planned or planted.

Available data on foreign production in 1934-35 indicate that increases in some countries have been about offset by decreases in others, so that the total is not likely to show material change from the foreign production of the 1933-34 season.

Available information, including reports from representatives of the Department of Agriculture who have studied the situation in

foreign countries, indicates that it is very unlikely that foreign commercial cotton acreage could expand by as much as 10,000,000 acres in the next 5 years, compared with approximately 32,000,000 acres, the average for the 10-year period, 1921-22 to 1932-33.

In fact, even if recent relatively active demands for foreign cottons should continue and even if there is no concerted international action to

FIGURE 15.-Cotton production in foreign countries, 1920 to 1935

obtain stability of production and marketing, it is improbable that there would be an increase of as much as 5 million acres in foreign production in the next 5 years. The continuation of the present cotton acreage adjustment program in the United States would not be likely to bring about such a further expansion in foreign production as would seriously interfere with American cotton's dominance of foreign markets.