The Cotton situation

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Title:
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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oclc - 01768374
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,?.

UNITED STATES DEPARTMENT OF AGRICULTURE 7'
Bureau of Agricultural Economics
Washington

0S-33 July 29, 1939

S -,-,--_ THE COTTON S I T NATION


**" iSummary

S US DEP rOlRY ,rt subsidy here is an outstanding element in the current

cotton situation, according to the Bureau of Agricultural Economics. Ef-

ports of American cotton are extremely small whereas there has been an

active movement of foreign cotton in recent months. Stocks of "free" Ameri-

can cotton are small. Cotton consumption continues heavy in domestic mills

and is being fairly well maintained in foreign countries.

Domestic cotton mill consumption in June, of 578,000 bales, was nearly

one-third larger than a year earlier and the second largest for the month in

11 years. Mill activity was also apparently well maintained through the

first 2 weeks of July, assuring an increase of more than 1 million bales

in domestic consumption for the 12 months ended July 31 as compared with the

preceding 12 months. Total consumption for the 1938-39 season will be the

second largest for any season since 1928-29.

In foreign countries cotton mill activity and consumption, adjusted

for seasonal variation, apparently remained about unchanged in June and

early July. In Europe, mill activity was sustained more than usually well

for this part of the season, with Government orders accounting for a substan-

tial share of the activity. In the Orient, cotton Lill consumption in Japan

and China continued well below a year earlier. In India, on the other hand,

mill consumption was apparently running about the same as a year ago, but

with that exception was the largest for the period in history.

The 114,000 bales of American cotton exported in June were only two-

thirds of the unusually small exports of June last year, and were less than





cs-33 2-

one-third, of the preceding 5-year June average. During the first 3 weeks

of July exports continued small, indicating a total for the season of loss

than 3,100,000 running bales (ecquiavalent to less than 3,600,000 bales of

500 pounds), the smallest exports for any season since 1881-82.

During the 11 months ended June, exports of Egyptian cotton were

slightly less than in the two preceding seasons, but wore the fourth largest

on record. From August through May, exports from Brazil were one-third

larger than in the corresponding months of 1937-38 and the largest for any

comparable period on record. Up to the end of May, exports from British India

were 57 percent larger than from August through May 1937-38 and only 7 percent

less than the 10-year average August through May exports.

The domestic cotton export subsidy program, effective July 27, provides

for a payment of l1 cents per pound net weight on all lint cotton grown in the

United States and exported on or before July 31, 1940, if such exports are

delivered for export or sold for export on or before June 30, 1940. Provis-

ions are also made for subsidy pVayments on all articles or products containing

not less than 50 percent by weight of cotton fiber. It is expected that the

subsidy, along with other factors, will result in a marked increase in exports

during 1939-40 as compared with the exceptionally small exports of the season

now drawing to a close.

PRICES

Domestic prices decline but continue above a year ago

From June 1 to July 15 the daily average price of Middling 7/9 inch
cotton in the 10 designated markets varied between 9.32 and 9.59 cents, the
latter being the highest point reached since August 1937. By July 22, how-
ever, the price had declined to 9.05 cents, the lowest level for more than 2
months, buat by July 26 had recovered to 9.47 cents. In July last year, the
prices in these markets averaged 8.83 cents.

As previously indicated, the relatively small "free" stocks of Ameorican
cotton, prospects for an export subsidy, and improved general business con-





CS-33


editions were important factors contributing to the substantial rise in
cotton prices from April to early June and to the maintenance of relatively
high prices throughout June and early July. It is quite possible that the
recent weakening in prices was partly a reflection of the fact that the new
crop is now being ginned and will soon begin moving in volume. As larger
quantities of the new crop are ginned, the supply of cotton in regular market-
ing channels will become much larger in relation to current needs than during
the immediate past, asfwuming that little or none of the new crop moves into
Government-loan stocks*

The official announcement with respect to the export subsidy program
on July 23 is perhaps responsible for the recovery in domestic prices on July
24 and 25. It also probably contributed to the advance in new crop futures
contract prices in relation to prices of spot cotton. On July 26 the spread
between the closing price of the five active new crop futures months, October
through May, and Middling 7/8 inch cotton in the New Orleans market ranged
between 0.33 and 0.81 cents per pound, whereas on June 15 new crop features
ranged from 0.98 to 1.49 cents below the average spot price.

American cotton at Liverpool declines in relation
to most foreign growths

In the first week of June the Liverpool quotation for American
Middling Fair Staple at 5.91 pence per pound reached the highest point for
nearly 2 years. From this point prices declined to about the 5.80 level,
near which they remained through the 21st of June, from which they dropped
further as the subsidy prospects became clearer. In the first 2 weeks of
July the quotations for American Middilirng Fair Staple at Liverpool fluctuated
between 5.50 and 5.62 pence, a substantial decline as compared with early
June. Quotations of other growths on the spot also declined from the point
reached in early June but most growths have become somewhat higher in re-
lation to Akericnm Fair Staple since June 9.' Discounts for Brazilian of
Fair grade increased from 35 to 40 penny points under American Middling Fair
Staple for Sao Paualos between June 9 and July 21 and from 70 to 75 for North-
erns. Indian Oomras No. 1 Fine narrowed their discounts from 180 to 150
points during this 7-week period.. In the longer staple category the premiums
on Egyptian Giza 71s widened from 102 to 112 penny points and on Egyptian
Uppers from 9 points on June 9 to 50 penny points on July 21.

As nay be seen from the accompanying table, however, the price of
American cotton was still relatively high compared with the prices of other
growths. On a percentage basis, the price of Anerican cotton was higher in
relation to Indian on July 14 than for several years, but by July 21 was the
lowest since Juno 1. The price of Egyptian Uppers has shown a rather steady
advance in relation to the price of American Middling Fa.ir Staple and on July
21 was higher on a relative basis than at any tine since April. Brazilian
Sac Paulo, on the other hand, has shown comparatively little change in re-
lation to American since June 9.





-4-


Table 1.-Cotton: Spot price per pound, specified growths at Liverpool,
specified periods
SAmerican : Indian FArptian : Brazilian
Av. 3 types I/ :F. G. F. Uppers : Fair. Sao Paulo
Season, Middling: Low : : As a % : :As a% : As a %
nonth : 7/8 : nidd-: : of ALieri-: :of Aneri-: :of Ameri-
or day : inch : ling :Actual: can :Actual: can :Actual: can
:_ 2/_._._:2: Middling ____ Middling,
10-yr. av. : Cents Cents Cents Percent Cents Percent Cents Percent
1927-28 to :
1936-37 : 14.50 13.60 10.88 78.3 17.12 117.9 14.08 97.7
1936-37 : 14.62 13.16 11.07 79.8 17.40 119.0 14.12 96.6
1937-38 : 10.31 8.78 8.02 83.9 13.10 126.7 10.18 98.7
1938-39
Aug. : 9.76 8.44 7.38 81.0 12.30 126.0 9.46 96.9
Sept. : 9.59 8.29 7.07 79.1 12.27 128.0 9.27 96.7
Oct. : 10.25 8.96 7.22 75.0 13.03 127.1 9.78 95.3
Nov. : io0.0o4 8.81 7.28 77.3 12.63 125.8 9.63 95.9
Dec. : 10.02 8.56 7.16 77.0 11.89 i18.6 9.54 95.1
Jan. : 10.10 8.64 7.13 75.9 11.50 113.9 9.61 95.2
Feb. : 10.02 8.55 7.02 75.6 11.56 115.4 9.53 95.1
Mar. : 10.17 8.71 6.94 73.3 11.58 113.8 9.68 95.2
Apr. : 9.67 8.21 6.98 78.2 10.90 112.7 9.19 95.0
May : 10.55 8.97 7.46 76.6 11.08 105.0 9.83 93.2
June : 11.94 9.38 7.63 74.6 11.47 103.9 10.18 92.2

June 1 / : 10.71 9.05 7.61 77.0 11.42 o106.6 9.74 90.9
June 9 : 11.26 9.60 7.77 74.5 11.43 o101.6 10.57 93.9
June 16 : 11.23 9.58 7.68 73.7 11.53 102.6 10.36 92.2
June 23 : 11.04 9.38 7-53 73.8 11.51 104.2 10.16 92.0
June 30 : 10.96 9.30 7.53 74.3 11.49 o104.8 10.08 92.0
July 7 10.94 9.28 7.57 74.8 11.68 10o.8 10.16 92.9
July 14 : 10.77 9.11 7.30 72.2 11.53 107.1 9.99 92.8
July 21 : 10.20 8.54 7.10 75.8 11.18 109.6 9.42 92.4


Compiled from reports
weeks which are from


of the Liverpool Cotton Exchange except for the last 3
cables to the Bureau of Aricultural Economics or from


reports of the Ner York Cotton Exchnnge. Prices were reported in pence per
pound and converted to cents per pound at current rates of exchange.

/ Includes aFully Good Broach, Fine Oonra #1, and Fully Good Sind.
SAverage of Anicrican Middling and Low Middling.
/ Friday, June 2, vwas a holiday.


CS-33





08-33


EXPORTS

United States exports smallest in nearly six decades,
foreign exports unusually large

The 114,000 running bales of American cotton exported in June were
only 64 percent as large as the unusually small exports of June last year
and 29 percent as large as the preceding 5-year June average. When reduced
to equivalent bales of 500 pounds gross weight, the June figure was the small-
est for the month since 1890. For the 11 months, August through June, do-
mestic exports totaled 3,220,000 bales as compared with 5,403,000 a year
earlier and an average of 7,553,000 bales during the corresponding period
in the 10 years ended 1932-33, The total for the first 11 months of the
193S-39 season was, by a considerable margin, the smallest for any year
for the period since prior to 1888-89, the first year for which exports in
running bales are available. In terms of bales of 500 lb. bales, the total
for the 11 months ended June 1939 was the smallest for any like period since
1881-82, or in 57 years (see table 2).

During the first 23 days of July, exports continued small, totaling
only about 62 percent as large as exports in the corresponding period last
year. While -the export subsidy which becomes effective on July 27 may speed
exports to some extent during the last few days of July, the total for the
month will still be exceptionally small and total exports for the season are
likely to be between 3,350,000 and 3,400,000 running bales.

From August to June, exports of Egyptian cotton of 1,640,000 bales
of 478 lbs. were slightly less than in the corresponding period of either
of the two preceding ser.sons but, with the exception of these two seasons
and 1933-34, they were the largest for the period on record. During the
10 months ended May 1939, exports of cotton from British India were 57
percent larger than in the corresponding period last season but slightly
less than the preceding 10-year average for the corresponding months.
Exports of cotton fi-rom Brazil in the 10 months ended May were about one-
third larger than the previous record high exports for those months es-
tablished in each of the two preceding seasons, even though the 1935-39
Brazilian crop was 200,000 boles less than the record crop of 1937-38.
In May, exports from Brazil wore approximately two-third larger than the
previous record high exports.

Subsidy of 1.50 cents pe!r pound expected to stimulate
expo _z 7 7C,--.LO

Partly as a re Ilt of the extremely low exports of the 1938-59
season and t'.3 u'.:''y high prices of American cotton in relation to
foreign grox--.hs, a cc bon-export subsidy program has just been inaugurat-
ed. The pro-o-n, effective July 27, 1939, provides for the payment of
1.50 cents per pound net weight on lint cotton grown in the United States





cs-33


and exported on or before July 31, 19o0, provided such export are de-
livered for export, or sold for export on or before June 30, 19o0. Pro-
visions are also made for payments on "any article or product which con-
tains not less than 50 percent by weight of cotton fiber."

This export subsidy is expected to contribute to a marked increase
in exports during the 1939-40 season. It seems quite likely that, in the
absence of. any major foreign military conflict, exports of American cotton
in 1939-40 would show a material increase over the exceptionally small ex-
ports of 1938-39 even without an export subsidy. This is because of the
exceptionally small foreign stocks of American cotton, somewhat smaller
stocks of foreign cotton, and the possibility that foreign production may
be smaller than in 1938-39. The subsidy, however, should result in a
materially more favorable price of American cotton in relation to foreign
growths in foreign markets as well as a slightly lower absolute level of
foreign prices than would exist without the subsidy. Both of these factors
should encourage foreign countries not only to maintain their stocks of
American cotton but to build them back up to more reasonable levels,

DEMAND AND CONSUMPTION

UNITED STATES: Mill activity well maintained

United States mill consumption of 578,000 bales in Juno was nearly
one-third larger than in June last year and the second largest in 11 years.
Trade reports indicate that during the first three weeks of July mill ac-
tivity and cotton consumption were well maintained even though most of the
manufacturers of print cloth signed an agreement in late June to restrict
their output to at least 75 percent of "normal production for 3 months"
between then and the end of September.

For the 11 months ended June 1939, domestic mills consumed 6,334,000
boles of cotton including approximately 113,000 bales of foreign cotton.
Assuming the daily rate of consumption in July shows about an average de-
cline in relation to June, consumption for the 12 months ended July will
total a little over 6,800,000 bales, approximately 6,700,000 bales of
which will be American cotton. These are each a little more than 1 million
bales larger than in 1937-38. In 1936-37 domestic mills consumed 7,950,000
bales. In no other years since 1928-29 has consumption exceeded 6,351,000
bales.

Domestic manufacturers sales of cotton textiles during June and
the first three weeks of July apparently exceeded output so that most
mills are said to be in fairly good position with respect to stocks and
unfilled orders. During the week ended July 21, print cloth sales spurted
and mill stocks were further reduced. Prices of the more active cloth
constructions advanced which, together with the decline in cotton prices,
widened the manufacturing margin for these cloths.


- 6 -




Cs-33


I.:


Jume_____


Country of
origin and
destination


itO-yr.av.
:1923-24
: to
:1932-33


: 1,000
: running
United States to: bales
*Germany .....6.
United Kingdom: 56
France .......: 24
Italy ...*.....: 36
Spain ........: 13
Belgium ......: 10
Canada .......: 12
Japan ......: 52


Ohina ........


20


Other coun. ..: 49
Total .....: 340


1 :1939 E(


: 1937* 1938' 1939 s a c
S' ; : of :
: ; : :1938 :


1,000 1,000 1,000


run.
bales
28
51
9
4o
0
5
22
44
31
31


run, run.
boles bales
17 15
22 10
8 3
19 9
1 V
6 2
16 24
30 28
1/ 2
57 21


Per-:
centi
88.2:
45.5:
37.5:
47.4:

33.3:
150.0:
93.3:
36.
36.8:


August to June


O-yr.av.: : :1938-39
1923-24:1936-:1937-:1938-:as a %
to : 37 a 38 : 39 : of
1932-33: : : :1937-38


1,000 1,000
running run.
bales brles
1,748 T27
1,698 1,120
801 653
645 387
269 l/
180 152
196 288
1,211 1,522
270 14
535 553


1,000 1,000
run, run.
bales boles
_7-5 307
1,521 394
711 335
*483 261
1 16
184 86
233 215
621 s46
22 84
982 676


Perw
cent
-77.6
25.9
47.1
54.0
I 00 .0
46.7
92.3
136.2
6s381.8
68.8


230 176 114 64.89 7.553 5.316 5.403 3.220


: Juneo August to June


*
*


*`XUgyt to
United Kingdom
France .... .
United States
Germany ....
Italy ........
Japan .. .... .
British India.
Other coun..
Total ....
British India to
Japan.
Italy ....
China .......
Belgium ...
Germany ..
United Kingdom
France ......
Other coun. .
Total .....
Brazil to
Japan ......
United Kingdom
Germany .....
France .......
Italy ........
Netherlands
Belgium....
Other coun...
Total .....


:

1

:
,I

S
S
U
a
S
S
S
S
*


1,000
bales
TS~i
478* I-b.
35
13
7
7
7
4
2
15


1,000 1,000 1,000
bales bales bales Per-:
478 lti7 Ph 478 Ib. cent:
23 33 30 90.9:
10 13 1 1i5.4:
2 1 1 100.0:
7 12 23 191.7:
12 8 6 75.0:
2 7 12 171.4,
5 6 4 66.7:
26 26 28 107.7:


1,000 1,000 1,000 1,000
bales bales bales bales
47s Ib. 478 lb. 47 lb 478 lb.
542 597 53 533
180 199 224 183
16o 60 34 33
100 133 194 198
93 109 110o 102
62 207 78 146
24 86 127 o80
221 377 358 365


Per-
cent
98.2
81.7
97.1
102.1
92.7
187.2
63.0
102.0


: 90 87 106 119 112.3: 1.382 1.76g 1,668 1,64o 98.3
: May : August to May
92 202 69 70 102.9: 1,100 1,733 559 843 150.S
26 20 5 6 120.0: 255 173 76 6g 89.5
35 1 2 151 7350.0: 252 10 55 423 769.1
19 29 10 8 80.0: 157 255 100 94 94.0
21 13 10 11 110.0: 164 143 10o4 132 126.9
: 19 32 31 43 154.3: 149 413 214 284 132.7
: 14 14 O10 15 150.0: 119 106 70 117 167.1
21 37 33 29 87.9: 136 209 206 210 101.9


a-
:.
S
S
S
*
*
*
*
S
a
S,
U


247


3549 169 333 200.0: 2.312 3.047 1.384 2.171 756.9


May
1b 37 82 221.6:
21 11 17 154.5:
10 37 36 97.3:
7 12 16 133.3:
4 3 6 200.0:
3 3 6 200.0,
3 3 2 66.7:
15 7 24 342.q:


2/ 3


7q 1]3i~q 167.3!


Aufgust to May-


91
232
225
41


2/ go


102 2g8
155 171
374 223
4s 104
8 50
12 27
20 20
55 148


2S2.4
110.3
59.6
216.7
625.0
225.0
100.0
269.1


-7-

Table 2.- Cotton: Iaports from specified countries, average 1923-24 to
1932-33, and seasons 1936-37 to date


59.6


Compiled from official sources. L/ Less than 500 bales. 2/ Not available by coun-
I tries.


:1939 :


-- 535 553


26q.1


79 113 109 1673: 742 774 1 031 133.2


- s







EUROPE: _/ Activity well sustained

Mill activity in the European cotton industry in June and early July
was sustained more than usually well for this part of the season in the more
important of the free-exchange countries and in Italy; and in fact at high
levels also in Germany though seemingly more than ever restrained by the acute
shortage of raw material. Government orders for the equipment of armed forces
and other defense services including in some cases the establishment of re-
serves, obviously accounted for a substantial share of the activity, though
in Italy and to a lesser degree in France improving export trade was a factor.
Generally increasing economic activity flowing out of large scale expenditure
. for rearmament appears to be building up purchasing power which, barring.
emergencies, should sooner or later implement home-market demand in a number
of countries, though under present uncertain conditions consumer spending
seems to be somewhat restrained. Except possibly in Germany, the situation
seems to have been characterized rather generally by a disposition to insist
on early deliveries of goods on order and to hold new-season mercantile.
business in suspense pending clarification of the raw-cotton price situation,
particularly as it may be affected by a subsidy on American exports. This
feature, coupled with pressure for early deliveries of Government-orders,
tends still to accentuate mill activity in the summer months and to divide
off, more than usually, the old season from the now. In the raw cotton mar-
kets current import buying of old-crop cotton was practically at a standstill.
However, with stocks of American cotton available for purchase now nearly
exhausted, a potential demand of considerable force exists, subject of course
to the influence of subsequent international political developments. Some
provisional commitments by American exporters for new-crop shipments have
been made though actual contracts are understood to have been awaiting annouwoe
ment of the export subsidy. The total volume of such business is believed.to
be much less than is usual at this time of year. Import buying of other
growviths especially those most competitive in point of quality with Aaperican,
appears to have declined also under the foreshadow of the American subps.idy
plans.

United Kingdom

Except for the nearer approc.ch to the new season, no very marked change
in the British situation wus evident in June and early July from that reported
in May. Mill operations in June and early July continued at not less than 80
percent of normal in both the spinning and weaving branches, which was around
the best levels of the current season and at a high level for that period.
Export sales of textiles showed little improvement, but home market civilian
buying on the other hand is thought to have about equaled its usual summer
volume, while Government buying superimposed on civilian-trade demand provided,
the support necessary to sustain activity at its relatively favorable level.
In late June and early July, mercantile business appeared to slacken with
easing tendencies in raw cotton prices in Liverpool. Apprehension with

I/ Basod largely on a report prepared by Agricultural Commissioner, Arthur We
ralrner, London, England, and the office of the Agricultural Attache, Berlin,
Germany. Report mailed from London July 12a


CS-33


- 8 -





W 9 -


respect to international affairs both in Europe and in the Far East also
exercised a dampening influence, although initiative appears to have become
much more hardened to risks of this kind than it was even a few weeks
earlier. Altogether the month may be accounted a good one.

There appears, however, still to have been much more than the usua.
disposition to treat the new season as something apart from the old, owing
to the peculiar uncertainties of the price situation. The great bulk of the
goods orders on hand at the end of June is said to.havu been for delivery
within July, August and September, beyond which business remained largely
in suspense. To a considerable extent, business calculations for the new
season are apparently awaiting conclusive information of the export subsidy
in terms of the amount per pound and the methods of application. The opinion
is quite general that should a flexible rate plan be adopted, imports, would
likely cause a continuation of hand-to-mouth import buying due to fear of
increases in the rate from time to time which might produce losses or at
least destroy profits on earlier purchases Meanwhile Lancashire complains
still of inability to obtain desired qualities to cover spinners' immediate
requirements.

Arrangements for collaboration between the cotton textile industry
and the Government in the allocation of orders of defense materials have
now been set up and on June 16 agreement was reached on the question of
prices. Orders in addition to those previously placed were expected to be
given at once for some 20 million yards of goods to be followed with others
from time to time. Actually a considerable part of Lancashire's operations
were at that time concerned with the rearmament program. In certain trade
circles, Government orders are regarded as being of a nonrecurring kind,
the absence of which is likely to be severely felt after the next 3 months
or so when for the most part deliveries should be completed. Elsewhere the
opinion is expressed that a considerable amount of pent-up business is
awaiting only the pending adjustments in the price structure within the
industry as well as in raw cotton and that "it would take little to make
Lancashire very busy."

In the raw cotton markets a good spot business for the time of the
year is reported, estimated Liverpool sales of actual'cotton averaging close
to 40,000 bales a week, mostly, however, of growths other than American.
Import buying of old crop American has continued at a standstill pending a
clarification of the price situation, but in spite of the uncertainties still
shrouding the export subsidy shippers were estimated to have provisional
commitments outstanding at the end of June for around 250,000 bales of new
crop cotton, the definitive contracts awaiting announcement of the subsidy
terms to insure eligibility for subsidy benefits. Ordinarily at this time
of year the volume of forward business is said to be somewhat larger.

At the phenomenally cheap prices at which cottons of the longer-staple
types have been selling in Liverpool andManchester. British mill takings
of this group have increased in recent months front about the usual 30 percent
of the total to around 35 percent. Forwardings of American cotton to British


CS-33





- 10 -


mills, which in June averaged 17,773 bales (478-pound net equivalent), were
almost exactly one-third of total forwardings the smallest share of the
total so far recorded in this century and probably the smallest since the
Lancashire cotton famine of the 1860's.

Imports between June 2 and 30 (in 478-pound equivalent bales) are
calculated as being American 13,044, Brazilian 30,848, East Indian 52,303,
Egyptian and Sudan (Sakel) 47,157. In terms of running bales, total imports
of American cotton into Great Britain for the first 11 months of the present
season were 69 percent (1,100,000 bales) less than a year earlier while
imports of 7razilian, East Indian, Peruvian, Egyptian, and Sudan Sakel
showed increases of from 3 to 50 percent.

British port stocks in running bales of American cotton on June 30
were reduced to 219,000 bales as against 730,000 at the end of June 1938 but
stocks of all kinds were 712,000 as against 1,130,000 a year before, with
increases in Peruvians, Egyptians, Sudan Sakels and East Indians.

Among the events of general interest within the month has been the
conclusion of the agreement between the Governments of the United States and
of the United Kingdom for the barter of American cotton for rubber, the
stocks to be held as defense reserves by the respective countries. The
transaction calls for a minimum of 600,000 bales of American cotton and
rubber to an equivalent value, but provides in the event of a subsidy on
cotton exports for a proportionate increase in the amount of cotton supplies.
While some concern was at first expressed in the trade as to the barter
aspect of the transaction, this seems to have becn allayed by the assurances
contained in the agreement that the commodities are to be held impounded in
each cxse for a period of 7 years unless earlier required to meet the
necessities of national emergencies, thus avoiding in the meantime any inter-
ference with the normal course of trade. As to the purely defensive, feature
of the transaction responsible opinion seems to be altogether favorable,
published comment in a number of instances urging the creation of similar
reserves of cottons of other growths, the shipping routes of which are more
susceptible of interruption.

Germany

Activity in the German textile industry was maintained at seasonal
levels during June. This followed a slight rise in production in May after
the marked dropping-off which occurred in March. The home demand for cotton
yarns and fabrics continues to be strong in Germany and in many instances
is not being anywhere nearly satisfied.

German consumer goods production during the past 6 years of upswing
has lagged behind the increase in production goods. Furthermore, textiles
have lagged behind the total consumer goods group. The index of textile
production in the first quarter of 1939 stood at 110.5 percent of 1928,
while the index for total consumer goods production was 116.1. Total consumer
goods production for the first quarter of 1939 is officially placed at





CS-33


- 11 -


10 percent above a year earlier, while the increase in textile production
amounted to only 2.5 percent. For the cotton industry alone the increase
was still less -viz., 1.8 percent. Yet, considering the raw material
difficulties, cotton textile expansion from 1932 .to 1938 was remarkable
enough, the production index of the cotton industry having risen from
83.1 percent (of 1928) in 1932 to 107.3 percent. in 1938 2/ an increase
of 29 percent. In the cir:cuntances, this achievement has only been pos-
sible by lar'c-scale substitut-ion of artificial and reclaimed fibers for
raw cotton, krd in fac-ct, a f.-rther expansion in the production and utili-
zation of Lelli-wool, and further restriction in the utilization of raw
cotton in the production of textile goods, are contemplated.

Production of cell-wool in 1939 is expected to reach about 200,000
metric tons, or the equivalent of over 900,000 bales of 478 pounds net,
on a pound-for-pound basis, compared to a production of 154,000 metric
tons in 1938, and 102,000 metric tons in 19c67. It is estimated that about
80 percent of the German cell-wool production replaces raw cotton rather
than wool and other textile fibers.

The utilization of raw cotton, on the other hand, was further
restricted by a decree which became effective on July 1, 1939. It prohibited
the production and utilization of materials containing cotton for certain
types of goods, such as women's clothing, linings of garments, cloth used
for upholstering, curtains and wall-coverings, flags, ties, ribbons, etc.

The decree thus regulating the use, of cotton, synthetic fibers and
mixtures of natural and artificial fibers is entitled "The Decree concerning
the Production and Utilization of Products containing Cotton" and specifies
that manufacturers are obliged to mark products (1) containing cotton which,
in the sense of the new order, means all fibers, textiles, and textile goods
which contain genuine cotton, cotton waste, linters or shoddy. It is further
stated that (2) manufacturers of such products are required to put into their
confirmations of orders and bills, as an essential portion of such papers, a
notation indicating whether or not the products mentioned therein contain
cotton. The second paragraph of the decree prohibits, as already stated, the
production and utilization of materials containing cotton for certain types
of goods. It is interesting to note that among the "Exceptions" t3 the
general regulations under the new decree is the statement that "The regula-
tions contained in this decree do not apply to goods which are intended,
directly or indirectly, for export." It may be pointed out, in this connec-
tion, that manufacturers of goods for export receive nearly all of the cotton
which they may require and, in addition, they may receive as a premium
additional quantities of raw cotton up to 50 percent of the weight of the
finished cotton goods which have been exported over a certain period.

Within the framework of the system of priorities for raw materials
and labor, favoring work on fortifications and in industries manufacturing

2/ 110.5 in the first quarter of 1939, compared to 108.5 in the first quarter
of 1938.





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war supplies or implements and goods which the authorities consider more
essential than goods for civilian consumption, a reduction of the labor
force employed in the textile industry is now being contemplated.
"Rationalization" of the production process is to offset this loss, yet
the situation that might result would be grave in view of the fact that
a shortage of workers in the textile industry has been more pronounced
than ever in recent months.

France

Indicr.tions from France are that the resumption of textile buying
noted in MDry broadened out in the first half of June during which there
was considerable fresh activity. In the latter part of the month the mar-
ket is said to have turned quiet but there seems to have been a feeling
that for the month as a whole yarn and cloth trade was quite satisfactory
Spinnors are said to have orders in early July which assured operation at
the existing high rate well through September. In fact, in a review of
official statistics one would have to look back to 1930 or an oven earlier
year to find the spinning branch in a more favorable position from the
point of view of operations, stocks and unfilled orders than it has been
in recent months. On the subject of profits, however, there was still
much complaint. Weavers are reported also to have had their production
quite generally sold through September and some makers of wide goods are
said to have been unable to promise delivery before about the end of the
year.

In France, as elsewhere, however, there appears to have been the
same general tendency to await settlement of the American cotton subsidy
question before making extensive commitments for the new season's campaign,
particularly transactions which have to be done at fixed prices, though in
this respect weavers seem to have been somewhat less sensitive to the- raw
cotton price factor than spinners. Spinners, however, had bought some
American cotton on call at a relatively cheap basis, business of this kind
for June being estimated in Havre at about 50,000 bales. In the Normandy
and eastern districts spinnerst requirements for the new season were
believed to have been covered with call contracts up to about 35 percent'
by the end of June and in the North to something less than 25 percent,
though there were indications that with Egyptians and Sudans at their narrow
premiums, requirements of these growths were covered proportionately much
further ahead than those of other growths while requirements of Americani
were covered least.

Business in raw cotton in Havre is reported to have been quiet through
most of June with the trade waiting clarification of the American export
subsidy program. On this account import buying of American was said to
have been practically at a standstill and of competitive growths also much
restrained.


CS-33






Italy Y

Some further improvement in the Italian cotton trade appears to have
taken: place during June, when the fear of war had seemingly lost most of its
former deterrent effects. The purchase of foreign raw cotton was made easier
by the reopening or extension of lines of credits by American and Swiss banks,
although the issuance of import permits was closely controlled and other con-
ditions delayed the placing of extensive orders for future delivery. The
cotton mills are said to have been kept going at practically their full
capacity working on Orders for both the foreign and the domestic trade,
indicating an improvement over preceding months. Foreign sales for cotton
goods were aided by the reopening of markets in Argentina following the sign-
ing of the new commercial agreement between the two countries on June 1 and
appear to have been maintained at satisfactory levels in other important
foreign markets. The domestic demand for cotton goods is said to have im-
proved considerably owing to the disposition of old stocks of higher priced
goods and offerings of njw materials made from cheaper cotton at more
attractive rates. Retail dealer stocks appear to have been reduced during
the preceding months and to require renewal.

Italian imports of raw cotton during the first 5 months of the year
were 33 percent smaller and 40 percent less valuable than during the same
period of the preceding year. Exports of cotton products on the other hand
were about 8 percent higher than 1 year before with the result that the
balance of this trade was materially in favor of Italy whereas 1 year before
imports of cotton and cotton goods were more than 100 million Lire 5/ more
costly than the exports of cotton goods.

No very great use seems to have been made during June of the reopen-
ing by a large American bank of extensive credit lines to Italian cotton
importers., Import permits for cotton were mostly restricted to minimum
requirements and most sales were chiefly for immediate delivery from stocks
held in Italian ports. The uncertainty as to the prospective American
cotton export subsidy deterred importers from placing orders for forward
delivery. Sales of American were also lessened to some extent by the low
prices at which Brazilian, Egyptian and Peruvian cottons were quoted; it is
said that offers of most of these varieties had already discounted an
export subsidy of 1 cent per pound on American cotton. Italian spinners,
however, would prefer American cotton at.prices anywhere near those of
foreign cotton of similar quality.

The newly organized State-controlled cotton import company, called
the Soc. Anon. Approvvigionamento Cotoni of Milan, issued its first circular
on June 9, 1939, calling for offers of exotic cottons. The capital of the
company is announced as Lire 5 million. Opinion now seems to be that the
new concern, whatever its potentialities may later prove to be, will not
for the present play a major role in Italian cotton buying.

Raw cotton quotas for domestic consumption allotted during June
amounted to a total of 37 million Lire, equivalent to an authorization for

4 Information received from the American Consul General at Milan.
SOne dollar equals Lire 19 at the current rate of exchange.


CS-33


- 13 -




- 14 -


buying somewhat less than 40,000 bales of raw cotton at existing prices,
compared to an average monthly importation of cotton for both domestic
and export manufacturing purposes of 45,000 bales in the first 5 months
of 1939 and of more than 67,000 bales in the first 5 months of 1938. By
a Ministerial Decree dated May 29, 1939, Italian textile mills were ordered
to take delivery of 7,400 metric tons each year of "oottonized hemp" fiber
which they are expected to mix with other fibers in the production of tex-
tiles for consumption within Italy.

Activity of cotton spinning mills during April (the latest period
for which official data are available) was slightly below the month pre-
vious, while weaving mills were more active than during March, though
somewhat below the levels of April 1938,

Italy: Cotton spinning mill statistics

: Spindle hours worked s Mill consumption by spinners of
Month percent of 1934 average : Raw cotton :Cotton waste & other fibers
S 1958 939 198 1939 2 938 1 99
SMetric Metric Metric Metric
I Percent Percent tons tons tons tons

Jan. S 125.3 114.8 12,389 11.996 5,474 5,909
Feb, S 122.7 115.9. 12,549 11,833 5,480 5,987
Mar, t 117.6 116.5 13,803 13,284 5.992 7,274
Apr* g 115.6 115.7 11,793 10,638 4,781 6,415



Italy: Cotton weaving mill statistics

:Loom hours word .Yarn consumption
Month :pot,of 1934 av. : Cotton : Art. fiber s Other fiber
S 98 1999 9938 : 1939 9 1'9 1939 : 1938 9r
S Metric Mutric Metric Metric Metric Metric
z Percent Percent tons tons tons tons tons tons

Jan. s 125.3 119.0 -- 7,261 -- 2,733 -- 1,870
Feb. s 126.2 118.5 7,434 6,700 3,011 2,933 1,835 1,960
Mar. S 126.8 120.3 7,876 7,231 3,267 3,410 1,881 2,182
Apr. s 124.6 122.6 7,449 6,354 2,959 a /3,300 1,508 a /2,003

Y/ Estimated.

The fact that compulsory admixture of substitute fibers is limited to
goods for domestic use obviously gives to the export of cotton goods added
weight as a determinate of raw cotton consumption. On this account Italian
cotton interests find it particularly gratifying to see an improvement in
cotton goods exports during the first 5 months of 1939. An advance of


C9433







- 15 -


8 percent in the value of such exports over the corresponding period of
1938 was chiefly due to larger exports of yarns, while exports of fabrics
were smaller. The. increase in yarns exports is largely accounted for by
substantial shipments to Yugoslavia and Rumania, countries which found
their supplies from former Austria and Czechoslovakia seriously curtailed,
as a result of domestic German requirements. Shipments of cotton goods
to Argentina, previously much reduced, have recently shown a pick-up
following the conclusion.on June 1, 1939 of an It-lo-Argentine trade
agreement.

ORIENT: Consumption continues high in India,
Tow n Chna .nd Japan -

It is tentatively estimated that cotton mills in India consumed
about 240,000 bales (of about 400 pounds net weight) of Indian cotton in
June, according to the New York Cotton Exc'-.',jge Service. This is approxi-
mately the same as in Juno last year but with that exception was the
largest for the month in history. For the 11 months, August through June,
Indiah mills used 2,831,000 bales-of Indian cotton compared with 2,693,000
bales a year earlier which was the previous record high for the period.

In Japan cotton mill consumption in June apparently again remained
about the same as in the preceding months of the 1938-39 season or around
200,000 bales. In each of the 10 months ended June, cotton consumption by
member mills of the Japanese Cotton Spinners' Association ranged between
198,000 bales (of 478 pounds net) and 224,000 bales. During the corres-
ponding months of the preceding season, consumption ranged between 244,000
and 340,000 bales. In June and July last year, consumption declined to
228,000 and 217,000 bales respectively, so that consumption.in recent weeks
compares much more favorably with a year earlier than in the months prior
to June. The rate of mill consumption in Japan during June and July, how-
ever, like most of the preceding 10 months was probably the smallest for any
like period in 7 or 8 years. For the 1938-39 season as a whole, total cotton
consumption by Japanese mills probably will be reported at something like
2- million to 2-3/4 million bales (American in running bales and foreign in
bales of 478 pounds). This compares with a total of 3- million bales con-
sumed in the previous season and a peak consumption of approximately 3,900,000
bales in T)'?6). Consumption of Amnerican cotton seems likely to total about
800,000/baies during the year ended July 1939. In the preceding 12 months
Japanese mills are estimated to have consumed 1,200,000 bales of American
cotton and in the 1933-34 season a total of 1,857,000 bales.

Mill consumption in China, including Manchuria, during June was about
the same as for the two previous months or about 145,000 bales. This was
considerably more than that of a year earlier but probably about three-fifths
as large as in the months immediately prior to the outbreak of the military
conflict with Japan in July 1937. Those mills operating in Shanghai were
running at full capacity during June and the middle of July but curtailed
activity was expected in the near future, according to a radiogram received
from the Consulate General at Shanghai on July 12.


CS-33




UNIVERSITY OF FLORIDA

CS-33 16 31262 08900 4112 p

ACREAGE, PRODUCTION, STOCKS AND SUPPLY ..
S.. i* :I
United States acreage again exceptionally small .

The acreage of cotton in cultivation in the United States on July i,
as estimated by the Crop Reporting Board, was 24,943,000 acres. This is
throe-tenths of 1 percent less than the 25,019,000 acres on July 1, 1938
and 32 percent less than the 192S-37 average. Assuming an average per-
centage abandonment during the years prior to 1909 the.first year for
which estimates of acreage in cultivation on July 1 are available the
estimate for the current year is the smallest since 1899.

The first estimate of probable 1939 United States production will
be released August 8.

Foreign acreage may show slight decline,
substantial declines in Egpt and China

The 1,687,000 acres in cotton in Egypt this year as recently
estimated by the Egrptian Government is 90 percent less than that of
1939. This is the smallest Egyptian cotton acreage since 1919, with the
exception of 1921, 1927, and 1932, during which years there were laws
restricting the acreage planted to cotton in Egypt. According to a re-
port from American Consul C. Paul Fletcher at Alexandria, the reduced
1939 plantings arc the result of the poorer yield and lower prices cotton
growers obtained from the 1936 crop and also the difficulty experienced
in marketing the crop. Yields per acre in Egypt in 1938 were 7 percent
below the average for the preceding 5 years. It is quite possible,
therefore, that higher yields might result in a 1939 crop equal to or in
excess of that of 193S, despite the reduction in acreage.

Plantings in central China this year were about 20 percent below
those of last year, according to a radiogram received from the American
Consulate in Shanghai. This is due largely to extensive fighting and
to Chinese government restrictions. In northern China, dry weather has
seriously affected the cotton crop in most areas. Drought conditions
prevail over large areas of the 5 north China provinces, though it was
reported that some sections of Shantung province were slightly relieved
by moderate rainfall toward the end of June. A small percentage of the
farmers have well irrigation and will be able to obtain a crop in spite
of the dry weather, 'In central China, weather has been generally favor-
able.

With smaller cotton acreages in Egypt and China, and also perhaps
in some of the other foreign cotton producing countries, it is not un-
likely that the 1939-40 total foreign cotton acreage may show a slight
decline even though the acreage in some countries is likely to show
moderate increases.