The Cotton situation

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The Cotton situation
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United States -- Dept. of Agriculture. -- Economic Research Service
United States -- Agricultural Marketing Service
United States -- Bureau of Agricultural Economics
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Economic Research Service, U. S. Dept. of Agriculture. ( Washington, D.C. )
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/' i/ l


UNITED STATES DEI'ARTYTT OF AGRICULTURE ________
Bureau of Agricultural Economics I ,i'-p
Washingt on

CS-28 February 28, 1939.

THE COTTON S ITUAT ION


Summary

Major factors in the cotton situation, as reported by the Bureau of

Agricultural Economics, include a high domestic consumption during the past

few weeks, exceptionally steady prices, unusually high spot prices of American

cotton relative to prices of new-crop futures contracts and relative to spot

prices of foreign cottons, continued small exports, and small stocks of "free"

American cotton.

Domestic cotton consumption has continued relatively high the past few

weeks, despite a slight decline in the seasonally adjusted weekly rate of acti-

vity during the latter part of December and in January. Consumption in January

was nearly two-fifths larger than a year earlier and, with one exception, was

the largest for the month in 10 years. During most of January sales of cotton

textiles by domestic manufacturers were probably about equal to or at least not

materially below production. But in late January and the first 3 weeks of

February, sales apparently were somewhat below output.

The general cotton textile situation in foreign countries appears to

have shown no major net change in recent weeks. Restricted sales and reduced

mill activity in some countries were roughly offset by improvements in others.

January mill consumption in foreign countries, however, was considerably

smaller than in January last year. From August through December this season

mills in foreign countries consumed about 6 percent less cotton than in the

corresponding period last season. This consumption, nevertheless, was the

third largest in history and much larger than average. Foreign consumption of





7JS-28 2 -

American cotton, on the other hand, was the smallest in 20 years, and about a

third less than the average for this 5-month period during the past 10 years.

Domestic prices of cotton have continued exceptionally steady. Dur-

ing the past few weeks, Middling 7/8 in the 10 designated markets has fluctua-

ted within a few points of 82 cents per pound. The stability of prices is

attributable in a large measure to Government loans. On February 23 reported

Government loan stocks exceeded 11,100,000 bales. This is equivalent to

nearly a fourth of the total world supply of cotton for the current marketing

season.

Exports of American cotton continue exceptionally low. During the 8

weeks ended February 22 they were about half as large as the comparatively

small exports of a year earlier. In January they -.ere the smallest for that

month since 1872, or in 67 years. Total domestic exports from August through

January were 43 percent luss than a year earlier, the smallest for the period

since 1881-82.

Factors contributing to the small exports include: (1) Record stocks

of foreign cotton on hand at the beginning of the season, (2) near-record

foreign production, (3) the smallest total consumption of cotton in foreign

countries so far this season in 3 years, and (4) an exceptionally large de-

gree of hand-to-mouth purchases of American cotton by foreign countries.

It is expected that exports cf American cotton during the last half

of the season will be higher relative to a year earlier than during the first

half. This seems likely in view of the greatly reduced foreign stocks of

American cotton at mid-season and the fact that foreign consumption of American

is now only about an eighth less than in the corresponding period last season.





WS-28


PRICES

Domestic prices of American cotton continued exceptionally steady dur-
ing the past month as has been the case since the beginning of the season.
From January 24 to February 24 the average daily price of fiddling 7/8 in the
10 designated markets fluctuated between 8.44 and 8.58 cents per pound. In
January, prices in these markets averaged 8.54 cents, the same as in January
1937, but 22 to 33 percent lower than in the four Januarys from 1934 through
1937.

The stability of domestic cotton prices during the current season, as
well as during the past season, may be attributed in a large measure to Govern-
ment loans. Government loan stocks now total a little over 11-1/4 million bales
including slightly over 4-1/4 million bales of the 19&8 crop, nearly 5-1/4 mil-
lion bales of the 1937 crop and almost 1-3/4 million bales from earlier crops.
As of February 1, such stocks represented about two-thirds of the total domestic
stocks of American cotton, leaving a total of about 6-1/4 million bales of "free"
American cotton in all hands in the United States. This is the third smallest
stocks of "free"t cotton as of.that date in 15 years.

The strengthening effects of the relatively small stocks of "free"
cotton on spot prices, together with uncertainties with respect to developments
during the 1939-40 season, have resulted in unusually high spot prices of Ameri-
can cotton relative to prices of new crop futures contracts and relative to
spot prices of foreign cottons. The unusual spot-futures price relationships
appear to be encouraging an exceptionally large degree of hand-to-mouth pur-
chasing. The relatively high price of American cotton in relation to foreign
growths is also encouraging foreign manufacturers to use foreign cottons rather
than American.

During recent weeks Liverpool prices of American cotton have increased
further relative to those of foreign cottons, particularly Egyptian. On February
17, the price of Egyptian Full Good Fair Uppers was only 15 percent above, the
price of American Middling 7/8. In December the corresponding percentage aver-
aged 19 and in September,28. In recent weeks, the prices of three types of
Iniian cotton (Ocmra, Broach and Sind) have averaged only about 75 percent as
high as these for American Middling and Low Middling at Liverpool, whereas the
average price r'.tio in August was 81 and in February last year, 85. The Liver-
pool price quotations for Brazilian Sao Paulo Fair are naow about 5 percent less
than those for American Middling 7/8, whereas at the beginning of the current
season, they were about 3 percent less and in February last year were about the
same as for American Middling 7/8.

EX PORTS

Domestic exports further reduced;
lowest in. January since 1872

The 290,000 running bales of American cotton (equivalent to bales of 500
pounds) exported in January were 55 percent less than the comparatively small ex-
ports of January last year, and the smallest for the month since 1872, or in 67
years. They were 57 percent smaller than the 10-year, 1928-37,January average.


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WS-28


Total domestic exports for the first 6 months of the current season, of
2,200,000 bales, were 43 percent less than in the first half of last season,
and the smallest for the period since 1881-82.

Factors contributing to the small exports include: (1) Record stocks of
foreign cotton on hand at the beginning of the current season, (2) near-record
foreign production, (3) the smallest total consumption of cotton in foreign
countries so far this season since 1935-36, and (4) an exceptionally large de-
gree of hand-to-mouth purchases of American cotton by foreign countries.

The unusually high prices of American cotton relative to futures con-
tracts and relative to foreign growths, largely as a result of large Government
loan stocks, have undoubtedly accounted for much of this hand-to-mouth pur-
chasing. High prices of and-difficulty of obtaining war-risk insurance on ware-
house stocks in at least some of the important foreign consuming countries has
also played a part. Efforts on the part of certain foreign powers to conserve
their foreign exchange along with the greater emphasis placed on products con-
sidered more essential for military purposes also have probably contributed to
this practice. Tht numerous import duties and' other international trade re-
strictions throughout the world have been additional but inter-related factors
contributing to the reduced volume of exports and more especially to the re-
duced value of domestic cotton exports.

It is expected that exports of American cotton during the last half of
the season will be considerably higher relative to a year earlier than during
the first half. This is based in part upon the fact that mid-season stocks.of
American cotton in foreign countries were more than one-fourth smaller than a
year earlier whereas foreign consumption of American cotton is now running only
about one-eighth less than at the same time last season.

Indian exports continue large;
BrazWilian reach record high

From August through January, exports of Indian cotton were almost twice
as large as in the corresponding months last season despite the fact that con-
sumption in India has been at a new record high. Indian exports for the first
6 months of the current season were, with the exception of the 1936-37 season,
the largest for the corresponding months since 1930-31. In January, exports
of Indian cotton continued larger (41 percent) than a year earlier, but not as
much so as in the preceding months of the season. This is not particularly
surprising in view of the unusually large stocks of cotton on hand in India
at the beginning of the season and since the current Indian crop, which only
within the past month or two has begun to move in volume, is considerably
smaller than last season's crop. These factors make it seem quite likely
that exports of Indian cotton during the remainder of the season will make
a less favorable showing in comparison with a year earlier than in the first
half of the season.

From August through January, exports from Egypt were 17 percent smaller
than in the corresponding period last season and the smallest since 1P32-33.
From August through November, exports from Brazil established a new high and
exceeded those of a year earlier by about 12 percent.


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CS-2-


DEMAND AIMD ClM-TION

UNITED STATES: Mill activity and cotton textile
sales continue relatively high

Domestic cotton mill activity and cotton consumption continued unusually
high during Jan-.r:- a-nd the first half of February. The 592,000 bales of
cotton consumed during January was 37 percent more than in January last year
- and, with the exception of 1937, the largest consumption for the month in 10
years. On the whole, sples of cotton te::tiles by domestic manufacturers during
January aop.ear to hnve been about equal to or at most only slightly below output.
During the latter part of January and in the first half of February, however,
manufacturers' sales of cotton textiles were apparently somewhat below production,
but were probably still comparably high in relation to most recent years. Smaller
sales than shipments are said to hove co,nsiderably roduied unfilled orders in a
number of lines of goods during the last few weeks. From August through January,
domestic mills consumed nearly 3,400,000 bales of cotton. This total was 10 per-
cent larger than in the first half of last season and, with the exception of
1936-37, the largest for the period since 192S-29.

A continuation of the average rata of consumption existing in the first
half of the season would give a total for the season of about 6-3/4 million
bales including about 125,000 bales of foreign cotton. A continuation of the
rate existing in January and early FDbruaryT would result in a total consumption
in excess of 6-3/4 million bales. Le'st seascin total domestic consum-otion amount-
ed to 5-3/4 million bales and in 1936-37 to nearly E million bales, which was
the largest on record. The 6-1/3 million bales consumed in 19Th-36 was the
largest, with the exception of 1973-37, in any season since 1928-29.

FOREIGN CQIMTRIES: Total consumption third largest
in histor-; consumption of American smallest in 20 years

From Au.gast through December, mills in foreign countries are estimated
to have cons-r.ed abcut S,X00,000 bales of cotton. This is 600,000 bales or 6
percent less than the record high cons'um 'tion in the like period last season
and slightly less than in the first 5 months of 1936-37, according to data re-
leased by the ITc York Cotton Exchange Service. This -vas, however, the third
Largest cotton consumption by foreign mills for these months in history. About
two-thirds of the decline as compared with last season was accounted for by
reduced consumption of American cotton.

The 1,9qO,000 bales of American cotton estimated to have boen consumed
from August throue'h December this season was 16 percent less than a year earlier
and nearly one-third less than the average for this period in the past 10 years.
Such data as are available indicate that this was the smallest foreign consumption
of American cotton for these months since 191g, or in 20 years. As previously
indicated the price of American cotton has been increasing relative to foreign
growths during the past several months and is now much higher than in the early
part of the season. This and the fact that current stocks of American cotton
outside the United States are nearly one-fourth less than a year earlier (whereas
at the beginning of the season they were one-fifth larger), makes it seem likely


- 5 -





-6-


that during the remainder of the s3'as3n foreign consummotion of Americrn cotton
may average lo'7er relative to the corresponding period last season than from
Au-ist through December.

In December the estirna: d total mill consumr.tion of -l cotton in for-
eign countries, of 1,OC,0O00 balaes, was only 4 percent less than in December
1937, but consu Iption of American cotton was 13 percent less than December
last year. Total consiuntion in foreign countries in J-tnuary appear to have
shown little cha-'f>- as c-mpared with Dece-mber and nay hve been fully as high
relative to a year earlier as in December. For-w:rdings of Amer-icnn cotton
*to foreign mills in January would suggest that consumption of Americ'n cotton
by foreign mills during the month --!s fully one-eighth less than in JPnuary
last year.

EUROPE: j

January brought no changes of major consequence in the Europea-n cotton
situation. Anxiety over the tr?nd of internati nal political affairs deepened
until about the middle of February when it was so1e0what relieved by pronounce-
ments of nnti'vnal loaders. Its ,'ffvct throughout the greater part of January,
however, w.,s to dampen buying initiative.

The continuation of an international price situation in w-hich American
cotton for deli'very in Inter months is quoted successively lower than for near-
by delivery and in which deliveries in the months of heavy movement of the next
croo have been priced by more thr-n a cent a 1ocund "inder nearby deliveries remains
also a factor. The influence of this is to spur liquidation of cotton and of
goods and to restrict new buying to small quantities for n-earby delivery. In-
ventories in the channels of trade aoo'.r to have been drawn doer and arrears
are prosumpbly developing- which at s ome tine will norriallr have to be made good.

With any clear innrov-?iont in the international political o'ltlook,
some increase in trade activity in the remaining.months of the season night
occur, but so long as prices remain in their present constellation n continued
tendency to hand-to-mouth trading is but logical. Meanwhile the complexities
which spinners face in their efforts to la- down programs of continuous operation
and the intensity of competition in most of the free-exchango countries ins-nire
more than usual interest in cheap cotton. Consequently exotic growths, especially
Brazilian ihich have been priced to sell freely, ,r: moving into consumption with
more than usual ease.

United Kingdom

The end of Jinu.r- found the British textile industry continuing to
operate on a hand-to-mouth basis with activity estimated between 65 -nd 70 per-
cent for spinning mills and at bout half of normal in the weaving sections but
with prospects moderately improving. Thur, far, however, mill ooer-tions, which
in the United Kingdom ordinarily show much greater season..l -xpansion than the
United States, had been Pble to mcke little of the normal seasonal gain over the
low levels of sunner. Employent of ':rkers in textile establishments in January
showed little changed from December.

I/ Based clvo, largely upon report prepared by the Bureau's London and Berlin
offices, mailed from London February 15..


CS-29





CS-28


A mild improve'--nt in the der.nd for niece goods which was evident
in the early pnart.of Januar' ,s short-lived and for the month as a whole
sales of cotton goods by manufacturers 7re probably less than the greatly
restricted output. Hone traee, though considerably restrained, v7rs the
chief reli-nce of the market *-nd a number of sizeable orders for government
and hospital goods were a sistainiing influence. With thcse exceptions small
orders seemed to be the rule.

Retail demand in the home market au p.rently continues moderately good.
Altho-igh according to the Ba -k of Engl.nd's calculations retail soles fell off
considerably in the Londn, are-s in Decr.iber, the total for the United Kingdom
as a whole shc'7.d a s.ineThat sui.rprising gain on the basis of vc.lue, of 1.9 per-
cent, over December 1937. Sales of piece goods, hc%-,ever, 'lere 6 percent below
those of 1937 whilee household -oonJs '-ere do-in 3.6 percent and dress materials
9.g.


Germ.any

The Geri ia: cotton textile industry zioved into 193o with manufacturing
operations at hiCh 1:vols after 2 7-ears of record production. The ge'ernl
picture continued to be one of inability of the industry, for a variety of
reasons, to neet all the denands bc.ing n,-.de upon it. The conditions are
those of general scarcity of textiles, without a sy-ptom, as vet, of any coming
change in either supply (including non-cotton as well as cotton) or demand
factors that should natorially alter this situation.

January reports h"ve confirmed the deterioration in supplies of raw
cotton '-ith which Germany seemed to be threatened upon acquisition of the
Sudeten and Austrian mills simultaneously with the unfavorable development of
the trade balance. It is now indicated that a general reduction of about 10
percent in the raw cotton allotments to the spinners ivas made in the last
quarter of l;3., with even 1arger curtailments for mills '7hich hnd nbove
normal occupation. These were follovred by a further curtailme-nt as of January
1, 1939, such a ste- was unavoidable if the Sudeten and Austrian spinners
were to h.ve raw cotton in view of the fact that German cotton imports have
recently shown a decline, rather th'n the incre-se that was needed.

Plans for expansion in starnle fibor -,roduction -_ar. binig pushed more
aggressivel:,- probably becmiise of the drop in cotton supplies 7ith a view
to raising output up to a rate of ohC',C,'K,OOO n:.unds annually by April 1939.
Much of this new production --ill be f',r the Austrian and Sudeten mills. It
is also indicated that nearly all of p.n, incr--scd o,'tput of stable fiber front
now on will repl-ce cotton rather than w7ol, owrtly for technical reasons
but presumably also bic.use of the rre-ter need in that direction.

The shortage of various cotton textiles after a lorg period of taboo
in the German oress is finally beginning to receive a certain amount of
cautious and indirect attention. It is denied that there is any "goods
hunger". The point is n-de that -ztual nro, action is at high levels, and


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CS-28


that the indices of retail textile business show a large volume of sales
In all lines. The shortages where they are any are thus said to be
elativee, resulting from a vastly increased consumer demand, and do not mean
eal hardship. At the same time, however, it is indicated that State require-
ments, which have taken and must continue to take precedence over private needs,
are at least partly responsible for the shortage of various textiles. The
implication of these statements is that present conditions of demand in relation
to supply must continue to be faced and that consinners must observe discipline
and adjust themselves to it until such time as improvement can be brought about.

Stocks of cotton goods in the hands of manufacturers, 17holesale
distribution and retailers are undoubtedly now reduced to the lowest levels
in many years. Retail stocks are visibly much reduced, in quantity, variety
and quality, -nd it is the common experience of housewives in bnying cotton
goods in recent months that they can secure what they want only in a small
fraction of cases. Usually they must accept either a substitute, a poorer
quality product, or a reduced qu.antity of the product through retail ration-
ing. Rationing likewise prevails in the.wholesale distribution from manu-
facturers do'n to retailers, and they are all reported to be operating with
much reduced stocks and a rapid turnover.

Reports from the manufacturing end continue to show that the mills
have about all the business they can handle currently and for months ahead.
The principal difficulty continues to be that of raw materials where more
tension is now anticipated after a definite easing in 1935. It appears that
the recent curtailments in raw cotton allotments have resulted in reduced
production, at least in some mills.

Export business is not proce-rssing well, with complaint generally as
to the strong competition from Italy, England, France and Jnpan. The state
of domestic business removed the sting of this as a sales problem for most
exporters, but it is none the less bad for those which ,--r specialized, and
excead-ngly unfavorable from the t tandpoint of its effect unon raw material
supplies for the industry as a whole. Textile exports have beeoon relied upon
to provide the foreign exchange for a considerable share of raw mat-)rial needs,
so a drop at this time is doubly unwelcome.

Cotton Fabrics Exoorts

Month 1936 : 1937 : lS
Y --- l I-- b. 1, 0g, b 7OT5.

August 4 ,855 5,756 4,694
September : 4,0o17 6,0S2 5,359
October : 4,020 6,715 4,094
lTovember : 3,776 5,370 5,750
December 4,597 6,397 4,519

Total 21,665 30,320 24,396


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S-9-


Reports emanating from Chemnitz, however, stress the fact that the
textile industry in Saxony is optimistic in its outlook for 1939, even as
regards exports. Exporting firms are preparing for more intensive sales
campaigns, it is understood, in southeasterr Europe and South America during
the present year in an effort to substitute other markets for those lost as
a result of the shift on expert business in recent months,

The textile industry has sho,.n considerable interest in present plans
for linking larger Egjptian purchases of German cotton foods with the German
imports of raw cotton from Egypt.

According to the Egyptian Chamber of Commerce in Germany, two
representatives of the German cotton textile industry have gone to Cairo to
discuss questions relating to the division and control of contingents. It
is understood that Germany wishes to export chiefly finished fabrics. Trade
circles in Germany are reported to have felt that, due to the substantial
possibilities offered by these import contingents, measures should be
taken immediately in order that all arrangements might 7-e in readiness by
February, when the purchasing season begins.

From Egvpt it is reported, Pccordin, to the "Berliner Tageblatt",
that there is a snecial demand for colored fabrics, due to the fact that
the young Egyptian textile industry has not, as yet, been able to create the
production capacity necessary to fully meet the growing demand in this field.

Reports from former Austria indicate that there has been a considerable
increase in employment in the textile industry in recent months, with the
total number of persons now employed exceeding that of a year ago by 20 to
40 percent.

Reorgani'.tion of the Austrian textile industry, which was begun
shortly after the Anschluss, continues apace. In the weaving industry
individual firms are reported now to -re specializing in a limited number of
products and, as a result, there has been a substantial decrease in the
large variety of samples that wcre formerly prepared by each plant.

Numerous technical chnn-es are being brought about and the so-called
"Austrian contingent", for the Germn textile industry as a whole, has been
prepared on the b.sis of needs to be fulfilled. -At present the production
of mixed yarns will, it is believed, reauire further technical readjustment.


It is reported that the production of cell wool will be started
in new mills in the Linz region this year.

ctz'e6ho slovaki a

The Czechoslovak textile industry is reported to be making considerable
headway again, although gencrni recovery from the industrial paralysis
which set in shortly before and after the October crisis is necessarily
slow.


CS-29





- 10 -


Cotton spinning mill activity has improved, but the margin of
profit is reported to be unsatisfactory because of increased production
costs. Prague reports state that yarn exports are suffering from Belgian
and English competition in this field. Deliveries to Sudeten-Germany on
the basis of nld contracts will sonn come to an end and quantities now
being delivered are not large. Cotton weavers report that sales have been
slack during recent months and only certain kinds of white cotton fabrics
are in lively demand.

Tho $S0,000,000 loan to Czechoslovakia which is being jointly
guaranteod- by the British and French Governments has created much
optimism in Czech trade circles. The loan is subject to certain conditions.
It will te used for economic rehabilitation and, particularly, assistance
t3 refugees.

The statistical services of the present Czechoslovak State have
net yet been completely adjusted to the new conditions prevailing through-
nut the country, with the result that basic Pnd very detailed information
concerning conditions during the last 3 months is not yet available.

The following table,reproduced from the January 6, 1939, edition
of the Econcmische Vcorlichting, shows the position of the textile industry
in present-day Czechoslovakia to be as follows:


Textile Plants


Uni t


: Drawing cf the new Boundaries


: Before


After


Cotton spinning plants ..........: Spindles
Wool spinning plants ............: "
Flax spinning plants ............: "
Jute spinning plants ............: "
Worsted spinners .. .... .. ...... : "
Hemp spinning plants ............ : Plants
Rayon factnries(prn)duction). *.....: Kilograms
Wool and Rayon weaving plants.... : Spindles
Hemp weaving plants ...........: "
Jute weaving plants ............. "
Wool weaving plants .............: Plants
Natural silk weavin' rilants ..... "
Ccttcn printing plants .......... Presses
Processing industry for cotton :
goods ..................... ... :. Plants


3,281,736
322, g845
171,224
43,500
490,000ooo
2
4,200,000
123,738
7,500-8,000
2, 586
144
30
167


1,616,216
56,934
34,388
28,000
125,000-160,000
1
1,200,000
79,843
4,000
1,336
80
3
102


Poland
A full report has now been issued 2/ concerning the December con-
ference of Polish government, industrial, scientific, economic and agri-
cultural leaders to discuss the achievements resulting from, and the future
plans for, the use of artificial fibers in the Polish tcx ijle indus'-.VY
2/ Report No. 8f5 American Embassy, Warsawf-,,rnl'er '(, 1938.


OS-29





CS-2g


- 11 -


The main points, which follow the brief resume in last month's
report, are:

(1) The Polish Government has set 30 percent as the percentage
of textile m'aw materials which should be composed of
domestically procatied fibers. While it was originally
intended that this ratio should be attained in 1939, present
indications are that it will not be achieved for another
3 years. The program of the Polish Government in this
regard is largely based on Italian and German policy and
experience.

(2) The raw material requirements of the cotton spinning in-
dustry are set at s3,800 metric tons for 1939, a 5 percent
increase over 1939 which arises out of (a) normal -opula-
tion increase, (b) demand from regions recently acquired
from Czechoslovlakia and (c) increased consumption re-
sulting from improved economic conditions. Of this 88,800
metric tons, sc.-.e 9,500 metric tons, including 3,500
metric tons of cotonina, will be composed of substitute
fibers of domestic production. Thus, substitutes will
account for 12 percent of the raw materials in relation
ts cotton and to 10.7 percent in relation to the total
demand (yarn, etc.) of the industry.

(3) The cotton textile industry will be given a bounty of 1
zloty (19.3 cents) in cash and an excess quota of one
kilogram of imported raw cotton for every kilogram of cotonina
utilized. Individual textile plants which do not work up
cotonina will have their quota of raw cotton reduced; thus,
the element of compulsion in favor of cotonina is intro-
duced. The bounty for the use of cellulose' fiber in the
cotton industry has been reduced to .25 zloty (5 cents)
per kilogram this year because of increased domestic produc-
tion and reduced prices of cellulose textile fiber. The
compulsion to utilize it in order to obtain a full quota
of raw cotton fiber is retained.
(4) The woolen industry will require in 1939 in the carded branch
some 22,100 metric tons of raw material, including 20,100
metric tons of imports, and the equivalent of 2,000 metric
tons of domestic cellulose and csc-in fibers (10 percent
of imports), and in the course branch some 7,000 metric
tons of raw materials of which the equivalent of 3,000
metric tons will be composed of domestic cellulose and
lanital (casein) fibers with 2,000 metric tons of washed
wool to be imported. Thus, domestic raw materials will
account in 1939 for 12 percent of the coarse wool industry
and 9 percent of carded wool industry insofar as r3w
materials are concerned.
(5) The Government estimates that some 12,000,000 zlotys (about
$2,250,000) in foreign exchange will be saved in cotton
imports and 11,000,000 zlotys (about $2,050,000) in woolen
imports by the use of domestic substitute raw materials in





- 12-


1939. In order to simplify imports, the Foreign Exchange
Commission is to allocate foreign exchange for cotton imports
3 months in advance in 1939 rather than 2 months as heretofore.
(6) Special efforts are being made to substitute domestic hemp
for jute in low quality bags and a combination of domestic
flax fiber and jute for higher quality jute products. This
latter combination will be more costly, but it is believed
the quality will be improved and the saving in foreign ex-
change will be considerate.
Belgium
The recession experienced by the Belgian textile industry in 193S
continued unrelieved in January of the New Year. Following the currency re-
adjustments of April 1935, a marked recovery took place in Belgian industrial
production which extended through 1937. Although exports of cotton textiles
did not correspondingly improve, a very substantial increase occurred in
cotton mill activity. By 1937 yarn production had exceeded that of any
previous year by about 15 percent and had more than doubled its volume of
1934. In 1939, however, spinners began to encounter difficulty in disposing
of their yarn output and stocks accumulated. The partial disintegration of
the cartel, said formerly to have marketed about 90 percent of Belgian yarn
production, has allowed prices to fall to levels generally regarded as un-
remunerative. The rate of spinning mill operation in January was believed
to be not over about 70 percent of normal.

Some part of the present situation is attributed to the falling off
of export sales which ordinarily account for about a third of production,
and a commission has now been despatched to South America to explore the
possibilities of a revival of trade especially with Argentina. As another
measure of relief, the linking the Belga to sterling rather than, as now,
to gold is mentioned.

As in other free exchange countries, spinners are in large part con-
fining purchases of cotton to their short-term needs and seeking the'cheaper
exotics, wherever their work will permit the substitution of these growths
for American. In particular, Belgian Congos of about Good Middling grade
and 15/16 inch staple are reported as having been taken in quantity at
discounts of 30 to 40 American points from prevailing prices of Strict
Middling 15/16 Texas cotton.
France
Although for a part of January the market for cotton textiles seems
to have been somewhat quiet, the improvement which began to be evident in
France during the autumn appears to have been well maintained. Further
progress in the government program for redress of the national economy and
restoration of confidence appears also to have been made. The Bank of France
on January 3 announced another reduction in its rate of discount, this time
from 2- to 2 percent. "The revival of business", it says, "is on its way".
The textile trade has gained no help from the disturbed state of
French relations in tLe Mediterranean and is confronted with the perplexities
in the international raw cotton price situation common to all consuming coun-
tries in the free exchange category. Moreover, the firmness exhibited by the


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- 13 -


franc in the foreign exchange market, it is said, has now definitely removed
one incentive for heavy anticipatory buying whether of raw cotton, yarn or
goods. That these factors, singIy or collectively are exerting a retarding
influence is suigeqeted in r-po~-ts that a substantial part of the usual large-
scale metropolitan buying has Yet to appear. Nevertheless there seem to be..
elements of vitali'-: j in the mar'.et which for the present tend to sustain
demand against the k-eight of depressing factors. Cloth orders for the
African colonies, the bulk of which are placed seasonally in December and
January, have been very satisfactory. Although prices are as yet too low to
be generally remunerative, present levels enable the French industry again
to compete effectively in the markets of foreign countries. Gains of trade
in yarns and goods with S.itrerland and Holland, though not yet sharply
apparent in the delayed export statistics, are reported to be developing,
partly at the expense of Belgium.

In place of the 32-hour week to which mills had by agreement restricted
operations in the suminer months, spinners in January were on the regular
40-hour base week with operations actually extending in many cases to 45
hours, in some cases even to 43 hours. Spinners have apparently covered their
raw cotton requirements as far ahead as they could sell yarns.

Italy 1/
No change worthy of note ap-ears to have occurred during January in
the situation of the Italian cotton trade and industry. The uncertainty with
respect to the dcmc.stic market, as well as in regard to international
political d;velormer'nts, seems to have left cotton manufacturers no alterna-
tive to a continuation of the hand-to-mouth practices in both the buying of
cotton and the production of cotton goods that characterized this market
during the last aurxarter of 1939. Some reports indicate a slight improvement
in the domestic demand for cotton goods, owing to the depletion of stocks
and the steadily rising prices which tend to stimulate the demand. The
foreign ma-rket was unsettled by the fear of war, as in the preceding month.
The loss of so large a portion of the E grptian market remained the most
serious setback in this trade, although the declining demand from the
Balkans promised further losses. Activities of It.lian cotton mills re-
mained well below the level of their oper,-tion a year ago.

The ban placed by the Natiorn.l Fascist Federation of Cotton In-
dustrialists of Milrn, on December 29, 1939, upon the exportation of
Italian cotton goods to Egypt nendin. the adjustment of the difficulties
existing between Italy and Egjpt with respect to this trade was partially
lifted at the end of January in order to permit the exhortation of Italian
cotton yarns to Eg,-pt, although no evidence of the settlement of the diffi-
culties referred to has been noted. Apparently, the loss of this market
for cotton yarns was felt too severely by the Itilian spinners to be
voluntarily piven up for long. Nor can the cotton manufacturers of Italy
do -without Eptian cotton altogether for any considerable length of time
without endnn.gering the loss of valuable markets for the finer t.pes of
cotton products which they mrke.

3/ Information received from the Amiericran Consul General at Milan.


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- 14 -


Negotiations for a trade agreement with Argentina are still going on,
due to insistence on the part of Argentina for a quota.of wheat exports to
Italy in exchange for Italian cotton goods, whereas Italy prefers to take
Rumanian wheat. On the whole, however, the outlook for foreign sales of
Italian cotton goods appeared no brighter at the end of January than a month
earlier.

The founding of a company to buy and import cotton for Italian spinners
is now generally confirmed by Milan cotton trade circles, apparently on the
general design of the recently organized firms to import coffee, spices, rubber,
lumber, etcetera. For the -resent, it seems likely that this company will only
handle orders for cotton intended for the manufacture into goods for consump-
tion within Italy, while producers who export cotton products will continue,
at least for the time being, to import raw cotton for their own use as hereto-
fore, using the foreign exchange obtained from their exports of cotton goods.
It is said that this company v:ill restrict its purchases to cotton- .-educing
countries that will bargain for Italian exports, like Turkey, Argentina, Brazil,
etcetera.

It is asserted that the new company will be a private concern, made up
of Italian otlcn spinnrmers and weavers who will also furnish its car ital; but
it is appauretl1; still an open question as to whether its director ',ri.0 be some
outstan'ijin, nercer of the cotton trade or indu:.-ry or a -..cr-' :rt of-'icial,
and it i? no secret at all that the c mj-i y K.! I be cont.'-',.1. ,," '"ian
officiLals whose policies it s ..-..c o ec't. ThC- C L s.. event-
ual contr.c over the Oexo.rt,,ation of coi;-, g.<, is i. .'. 'xt has by
no mets been ah'andonud, s-\ce it is c,'"-.y e.. of t.' ::r i the official
control of the newly toin': .ed iport ccip z'.u-s to ue th, o ...ni ties which
they afford to promote in ev-.iy Iossible Lannner the exportation of Italian goods.

The Minister of Corporc.tions in Rome, in an announcement dated January 19,
1939, fixed the .1' -KLiT.I prices at which ri-Y.:', textile ys^rn may ?e old in
Italy at the fo_,c.ini r-tes, B .s 20, per klo;ram: Yarns cont :'rig 25 percent
cotton and 75 por'cent of "national fibers", Lvrc. 4/ 12.85; yarns containing
50 percent of cotton, Lire 14.50; yarns cont-::ining 75 percent of cotton, Lire
16.15.

The Istituto Cottoniero (Cotton Institute) in Milan is authorized to
calculate the prices of other mixtures upon the basis of th-se prices and to
publish daily prices on t: _. three mixtures. Those quota'ions I :ave ;Lot varied
since the origf'.nal ar.non-.cF-ment above quoted, but the d1ily b_],Je .in of the
Institute has contained an additional quotation on yarn made of -.ure staple
fiber (clear) at 11.20 per kilogram which has also remained unchanged.

It will be recalled that all so-called cotton textiles manuf':.tured
after January 1, 1939, must contain substitute fibers called "national fibers",
equal to at least 20 percent of their total content and that the favorite
"national fiber" is staple fib-r.


4/ Lire 1.00 equals 5 2ents at the current rate of exchange.


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CS-28


- 15 -


ORIEIT 5/: Mill activity continues high in
India, but low in Jnpan end Chin,

Although tle approximate 275,000 b;,ils (of about 400 pounds net
weight) of -ndianr cotton consumed by Indian mills in January was
slightly ltuss th;:n the record consumption of December, it was the larg-
est with that exception for any month in history.' As compa-ired with January
of last year the increase was 4 percent. I each of the past 19 months,
Indinn mills havoc consumed more Indian cotton and possibly more cotton
of all kinds-than in any previous corresponding month. The 1,600,000
bales of Indian-cotton consnumed from August to January was 9 percent
larger than in the like period of last season. To a considerable extent
this record mill consumption in India is due to the displacement of
British and Japanese cotton textile imports by goods made in India.

The indications ara th.t Japonese mill consumption, of cotton in
December and January w.s .bout unchmngcd. In late January, however,
some observers estimated that at the existing rate of foreign exports
and domestic requirements for cotton textiles, cotton consumption would be
further rcduned by nearly 15 percent. In Decembur and January, consump-
tion was about one-fourth to one-fifth lcss than a year earlier and the
smallest for thu period in 7 or 8 years.

In January, Japanase exports of cotton cloth dropped 100 million
squire yards or 42 percent under those of Decembcr and were the small-
est for the month of January since 1932. Total exports for 6 months
August through January, of 1,108,000,000 square yards, were about 17 per-
cent less than in the corresponding period of last season and the smallest
for the period since l133-34.






5/ Information with respect to China '-nd Japan b..sed l-irgely upon radio-
grams from Shanghai transmitting material prepared by Agricultural
Commissioner 0. L. Dawson at Shanghai 2nd American Consul McConaughy
at Osaka, Japan.

It is esti-ated that in Jinuary, cotton mills in China and
Manchuria consumed about 150,000 bales of cotton compared with
140,000 bales in Decmc-ber, 135,000 bales in August and 85,000 bales
in January last y.:ar. This w"-s the largest consumption for any
months since irnedir.tely following the outbreak of hostilities with
Japan in December of 1937. The first 6 months of the season mill
consumption is tentatively estimated at 8.0,000 bales. This is
equivalent to an annual rate of 1,660,000 bales.




UNIVERSITY OF FLORIDA

3 1262 08900 4146
CS-28 16 -



ACREAGE, PRODUCTION, STOCKS AND SUPPLY


government loan stocks greatly reduces supply of "free" cotton

On February 1 domestic stocks of American cotton totaled about
17-1/2 million bales. This was nearly 2 million bales larger than
the previous record stocks as of that date and more than twice as
large as the average for the 6 years ended 1930. Because of the
large Govbrnmrent loan stocks, however, total stocks of so-called
"free" cotton as of that date were the third smallest in 15 years
and one-fourth sm-ller than the 6-year pre-depression average.

During the 4 weeks ended February 23 the quantity of the
1938 crop pledged under Government loans was increased by 200,000
bales. During the preceding 4 weeks 390,000 bales were pledged. It
is generally expected that thae pledges will continue small until
the expiration of the loan. As of February 23 loan stocks totaled a
little over 11,100,000 bales. The peak for the season probably will
be in the neighborhood of 11-1/2 million bales.

Indian acreage and production materially reduced

The 1938-39 Indian cotton acreage was recently tentatively
estimated at 23,483,000 acres, according to a cable recently received
from the Indian Government at Calcutta. This figure which excludes
Burma, is approximately 1,850,000 acres or 7 percent less than the
corresponding revised estimate for last season. The current season's
production excluding Burma is tentatively placed at the equivalent of
4,085,000 bales of 478 pounds net compared with the revised estimate
of 4,755,000 bales for last year.