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UNITED STATES DEPARTMvNT OF AGRICUI.TUE I ___
Bureau of Agricultural Economics "''
CS-24 October 24, 1939.
THE COTTON SITUATION
Under the influences of a more favorable European political situation,
further improvement in domestic busines- conditions and a heavy movement of
American cotton into Government-loan stocks, domestic cotton prices advanced
about three-fourths cent per pound during the 5 weeks ending October 21, re-
ports the Bureau of Agricultural Economics. This advance, which brought the
0l-market average price of Middling 7/g inch back to approximately gS cents,
occurred despite a considerable upward revision in the indicated world supply
of American cotton.
With further improvement in domestic business activity and with
cotton prices strengthening somewhat, domestic manufacturers' sales of cotton
textiles increased considerably during thie past few weeks. As a result, mill
activity in early October is reported to have increased slightly in comparison
with the rate of activity in August and September. While cotton mill con-
sumption is now running at a rate lower than a year ago, it is roughly 10
percent higher than the average rate existing during the 1937-39 season.
Further improvement in United States business activity and payrolls during
the next few months would likely be accom-rnied by an additional increase in
domestic cotton consumption.
The cotton textile situation in foreign countries continued very un-
favorable during September. But the easing of political tension in Europe
in early October is considered favorable to a resumption of more normal
sales of cotton textiles by European manufacturers, especially sales to
export markets. Total cotton consumption outside the United States, so far
this season, has been considerably below consumption during the corresponding
period last season.
Upward revisions in both the carry-over and estimated production have
increased the indicated total world supply of American cotton about 600,000 bales
during the past month. It is believed, however, that the 1938-39 production of
foreign cotton mny be somewhat smaller than was expected a month ago. The
present estimate of the supply of American cotton for the current season is
approximately 1 million bales larger than last season's supply and approxi-
mately 2 million bales less than the record supply of 1932-33. On October 20,
however, approximately 8-1/3 million bales of the indicated supply for the
current season were being held by the Unit3d. States Govzrnment as collateral
against loans compared with a total of abcut 2W million bales of such stocks
a year earlier. During the 4 weeks ended October 20 there was an increase of
approximately 1.4 million bales in the reported Government-loan stocks.
From mid-September to October 21 there wnas a net advance in domestic
cotton prices of approximately three-fourths cent per pound. On the latter
date, Middling 7/g inch in the 10 markets averaged about g-2/3 cents. This
advance was apparently attributable in part to improved consumption prospects
resulting from the more favorable political developments in Europe and im-
provements in domestic business conditions, and to some extent to the rather
large increase in Government-financed stocks.
Since the beginning of the current season, the average price of
Middling 7/g inch cotton in the 10 markets has fluctuated within a range of
approximately three-fourths cent per pound. ;e high point (f the season
through October 21 of 8.67 cents was reached/that date and the low pint of
7.92 on Septombor 17. During the first 2 months of the season, domestic
prices averaged about nine-tenths cent lower than a year earlier and the
lowest for the period since 1932-33. Current prices, however, are about
one-third cent a pound higher than the October 1937 average.
In Liverpool the ratios of the prices of some of the principal
foreign grovths to the price of "fair staple" (approximately 7/g inch) Ameri-
can cotton hrve declined considerably during the past month. On October l4
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Liverpool prices of Indian and Brrzilian cotton were lower relative to American
than for -.. number of months and considerably lower than. the r.verage. While the
price of Egyptian Upoers in relation to American was considerably lower than
a month earlier, it was the highest with few exceptions since 1932-33.
Cotton, spot price per pound, specified growths at Liverpnol,
Season, : Mid- : Low
month : dling: Mid-
or day : 7/" : dling
1936-37 : 14.62 13.16
1937-39 : 10.31 8.78
Aug, 9.76 g.44
Sept. : 9.59 8.29
Oct.7 : 9.98 9.6q
Oct.14: 10.34 9.06
Av. 3 types l/ :
:As a. per-.
Actual:cent of :
:tAmer. i/ :
F O-F. Unnera
:As a p
: Amer. N
_: Fair. Sao Paulo
or-: :As a per-
f : Actual:cent of
[id.: : Amer. Mid..
nt Cents Percent
Compiled from reports of the Liverpool Cotton Association except for the last
2 weeks which are from cables or reports of the Nc,7 York Cotton Exchange.
Prices were reported in pence and were converted at current rate of
I/ Includes Fully Good Broach, Fine Oomra # 1 .nd Fully Good Sind.
p/ Average of American Middling and Low Middling.
Exports of American cotton in September totaled 399,000 running bales,
37 percent less than in September 1937 aLnd the smallest for the.month since
1922, according to reports of the Bureau of Foreign and Domestic Commerce.
Exports for August and September combin-d. totaled 590,000 bales, This quantity
was 250,000 bales or 30 percent less than exports in these months last season
and the smallest for the period since 1920. The decline in comparison with
last season is accounted for by smaller exports to Europe; each of the four
larger consuming countries (United Kingdom, France, Italy, and Germany) have
taken much smaller quantities than during the first part of 1937-38. It
should be noted, ho,-'ever, that in the early part of last season cotton con-
sumption in Europe was still being maintained at a comparatively high level,
inasmuch as the recession in business conditions and in cotton consumption
occurred later in Eurooe than in the United States.
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There was very little raw cotton import buying by European countries
from the United States during September, but some stimulation of purchases
from European port stocks occurred in anticipation of shipping hazards in the
event of war# The jump in War Risk Insurance rates added first about 10 and
then nearly 20 American points to the cost of landing cotton from the United
States in Great Britain-and at western continental ports, The increase was
considerably greater on competitive cottons moving via the Mediterranean.
Insurance on shipments to Germany anid Italy was subject to special re-
strictions, At one time the insurance cost on cargo to Germany reached 10J
percent. All rates were drastically reduced following the Munich agreement*
Cotton: Exports from United States, specified periods
A September : August and September
to which : : : :
exported : 3 :19 1937 : 1936 93 1937 : 1936
:Running Riunning lhin Running Running Running
: bales bales bales bales bales bales
Europe .......: 270,857 564,464 334,282 400,495 759.,047 530,366
Far East ....: 101,185 37,293 166,017 154,299 54,842 190,232
Elsewhere **....: 16,616 15,687 19,325 34,713 23,970 31,513
All countries : 388,658 617,444 569,624 589,509 837,859 752,111
Compiled from reports of the Bureau of Foreign and Domestic Commerce.
DEMAND AND CO0SU.PTION
JUITED STATES: Demand conditions moderately improved
With further improvement in general economic conditions in the United
States, as indicated by industrial production and consumer incomes, sales of
cotton textiles by domestic manufacturers appear to have averaged consider-
ably higher during the past 4 or 5 weeks than during the preceding month.
On the whole, sales of unfinished goods wore apparently about equal to or
somewhat greater than production, which was maintained at a rate considerably
above the average for last season. Sales of unfinished goods were par-
ticularly heavy during the first week of October when, according to trade
reports, they were variously estimated at 50 to 100 percent above output*
While it seems probable that any further improvement in industrial
production during the next few months will be at a slower rate than in the
past several months, any improvement would be favorable to the maintenance
or an increase in sales of cotton textiles by manufacturers and distributors.
Even should sales of cotton textiles be sufficient only to maintain the
current rate of cotton textile output, domestic manufactures would consume
roughly 10 percent more cotton during the 1938-39 season than was consumed
last season. It is expected, however, that for the season as a whole cotton
mill activity and consumption will average somewhat higher than at present,
In September, domestic mills consumed approximately 534,000 bales of
cotton, according to the Bureau of the Consus, comiparud with 561,000 in
August and 601,o000 in September last years. The daily rate of consumption in
September was roughly the saiwe as in August and about one-tenth higher than
the average for the past season. Unofficial reports for the first 2 weeks
of October indicate that mill activity may have increased slightly over the
average rate of the 2 preceding months. Total domestic mill consumption in
the first 2 months of the current season was about 1,095,000 bales com-
pared with 1,205,000 for these months last season, and was about 10 percent
greater than tho average consumption for August and Seoptc.mber during the
10 years ended 1936.
EUROPS: Textile situation somewhat more favorable _/
Conditions in the European cotton textile industry during Sopterbcr
were depressed by the unsettled political conditions, especially in western
Europe and Italy where the throat of ir..mir.ont war soeuod to aggravate an
already unsatisfactory business situation. There is not much in the outlook
for the immediate future to justify a very optimistic view of the industry's
business prospects. Yet since the agreement of the four powers at Munich at
the end of the nonth has at least dissi-;atod the d-.r.oer of a.n imminent
general war, the mid-October situation is considered somewhat more favorable
than the situation existing a aonth ago,
Another considerable territorial change in Central Europe has brought
a large share of tho Czechoslovak cotton industry within the frontiers of
Creator Germany. A large central European area and Italy are now within the
orbit of large-scale substitution of synthetic and reclaimc."L raw materials
for ra;w cotton in the spinning industry, and of the use of considerable
quantities of "bc.rtcr cotton". This area (Germany, Austria, Sudetcnlnd,
Italy) cori'.rises roughly 19,000,000 cotton spinning spindles out of a total
for Continental Europe (excluding Russia) of 40,000,000 spindles,
The British cotton textile industry in Septeobor continued in a state
of depression with output only about half of normal and with order b-oks
continuing to lose ground. So exceptional were conditions, ho-.,evor, that
the records for the month affcr. but little indication of current trends,
With the threat of v..-r incrc-.sing in intensity throughout the month, but
little, if any, real1 progress was iaado toward recovery. The signing of
the L.iunich agreo-ment by representatives of the four powers on the last day
of the month, however, is believed to have substantially ameliorated
conditions. And with trade factors again fr,-c to operate, sor.'e improvo-
iient, at least seasonal in nature, is expected; although little change
in the basic economic position of Groat Britain is apparent.
1/ Based largely upon a report prepared by the Bureau's London, England,
office, dated October 4.
The hazards to business in September wire quickly reflected in War Risk
Insurance. To me.et the situation,, a rating committee was set up by arrangement
bctwfen Lloyds and the undE.rwriters to Lstablish minimum rates and to revise
them from day to day as conditions indicated. Prott.ction was offered only on
shipments by named ships sailing within 7 d-'ys from the date of the insurance
contract. In one day, rats on cargo inbound from the Unitud States to the
Unitu.d Kingdom were increased from onu-fortitth perci-nt to 1 percent from which
they wire again raised to 2 pe-rcint, while at the height of the crisis the rate
on shinmt.nts via the M,.diterran-man reached 5 percent. The inability of the
insurers to provide War Risk covir at stable rates added a new factor of un-
certainty to price calculations. With thb signing of thi. Munich agretament,
the rates were immediately and drastically rbduct.d, although not to th, levels
nritvailing at tht. beginning of St.ptmbcr.
Though the. pit.ce.-goods mark.t vwas ,.xtrum,.ly qui,.t in t.arly S.t-etmber,
fairly active. ,nquiry prevailed in the. last 10 days. Ordt.rs booked wt-r. generally
small, but the, total volume of tradi. is bc.lii.v,.d to hav,. be.en som,.what br.tter
than might have; been E.xpt.ct.d. This sti-ns to have. been particularly true with
rt.smn.ct to India, Java, Ceylon, and Eg;opt, !s wbll n.s with Arg,.ntina and
Vi.nt.zuC:la. Exports of pi'.ce. goods in S,.ptrn'b.r continue. d c.xcuotionally low.
Thf homi, markett for pit.cG goods, e;xcipt for govf.rnr'i.nt trnEs, was reo;nortc.d as
Th.. yarn market was likc~wist. influ, nct.d by th, war situ-,tion, and by
the rclinquishmunt on S.pttmnbt.r 21 of price, control on Medium Court Amarican
ring yarns. While the pricE dr.clint.s wiv.r, said to h:1v6 ri.lt.asc.d somi orders
for yarns of this description, ft.ar that wt.aknc.ss in the. price, control scheme
might spread is said to h.,v, continued to rt.strict buying of yarns of sorn,. other
types and counts.
The. situation in Grmany reimain.d largc.ly unchangi.d during Sc.tt.rmbe.r.
Mill activity continued high. .i.ll consumption returns nublishi.d by the
Manchi.sti.r Federation indicate that at lv.ast a substantial noart of the. increases
in German raw cotton imports during 1937-3S wv.r., not utilize.d by the mills,
but wt.nt into stocks.
Tht, inclusion of thi Sudoetn country irndustric.s in the. GrE.ati.r German
territory may/ be .stimatod to hav. :,6dd;.d -round 22- million cotton spinning
spindlc.-s to German production carp:city. This will raise. the riumbcr of cotton
snindlUt.s in Gru.ater Germany to about 13-2 million. A considarabl,. reorientation
of the. Sudutan cotton industry will be riquiri.d s a r sul t of the. sc.cr.ssion of
these districts from Cz-choslovakia. Some .xoorts to the nrrcvicus do'iestic
market of Czechoslovakia arE. likely to be. maint Lin.d, and -c3oorts t, southeastern
Euroopi. should continue pronint.nt. Th<.ri will be. unfavorable. divi.lopmt.nts in
some branchc;s, howtve.r, including the. knitting mills. Exhorts of glov.s and
table da-iask to the, Unite.d Status, for 'xanplf., will los,. the. benefits of the
Amtirican-Czt.ch tradt. treaty, and ,n thu do.E .stic German mark..t the.su products
will encounter the. competition of the. highly dt.Vt.lopid S.-axon industry. It is
further probable, that the product of the S-ude&ten cotton industry will bi. in need
of i:xoort m--rkets. The pr.mnitted r,.quiri.m,.nts of tht. German and Sudrten market
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could not employ the capacity of the cedid Sud.nten industry, which is far larger
than the. consumptive needs for cotton products of the cdr&d population.
As in tho case of Austria, an industry formerly free to us6 and buy raw
cotton without restriction or dulib'.rate regim-.ntation is now drawn into the
orbit of substitute production and import direction. Consequently th.re pt.rhaps
will be another increase in Central Europt. in tli. utilization of staple fiber
and othe-r substitutes at th ,xnEnse of raw cotton.
It is not yet Evid,.nt how much of the former Czechoslovak cotton tc.xtile
industry largely situated in the Germian-spt.aking areas of thu republic will
be lt.ft within th rnt.w boundaries of the country. But a vt.r, s-v:reC curtailment,
possibly by two-thirds, is to be t.xpectcA. It is probable that Czuchoslcvakia
will retain relatively more looms than spindlt.s.
The political tension during th,. past sovzral weeks was not conducive
to much new business. Mill activity also was furtht:r curtailed, and some, mills
had to shut down. The latest available indjx of spinning mill activity for June,
indicated only 66 percent of capacity occupation, or 35 pirccnt below June 1937.
Furthermore, it srcjns likely that thi. rate was further reduced in Sentember.
It is to bt. t.xpected that most of the. remaining cotton textile. output in
the new CBechoslovakia will bu sold on-thc home market. It is hardl; likely
that tht-.rt. will be nuch i;xportaticn of cotton yarn, though s-m-. exports of
fabrics frcm traditional supplies to traditional custome-rs are likely to continue.
Despite the unfavorable repercussions which thi. international tEnsion
had uoon business initiative during Sep tcmber, the French weaving mills ?-nd
textile wholtsal,. tradt including importers r;-oorttid a fair amnount of business.
The situation was apparently less satisfactory in the case of spinning mills,
but reports from the Normandy region were not wholly discouraging. Very un-
satisfactory conditions, howei-ver, fxistt.d in thi spinning section of the
Alsacian district which of course, was most aff-ctid by the international un-
certainties. Weaving mills, even in Alsace, on the. other hand, reported a good
currr-nt of busint.ss.
Conditions in the Bi,lciian cotton ttExtili. industry are said to have
remained dtfinitoly unsatisfactory in Suy tc.mber. Occupation of the. mills was
much re.stricttd. Competition in foreign markets was described as keen, and
domestic demand did not offer adequate. comptnnsation for tht. rt-duction in sales
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A pessimistic note characterized all reports regarding conditions in
the Italian cotton industry and trade during August and Septembr and regarding
the outlook for the immrndiate future. August is usually dull because it
includes the customary vacation p-riod, but this year it is said to have marked
also the lowest point yet reached in the nonseasonal decline in sales and
Dealers report relatively little revival of buying interest for cotton
and they foresee a lean season for some months to come. This is believed to
be due chiefly to the depressed domestic market for cotton goods, which is still
fairly well stocked, and to the failure of -xport business to revive. A further
reduction in mill consumption of raw cotton for the manufacture of fabrics for
the domestic market is also indicated by re-ports that mills will be forced to
utilize larger quantities than before of staple fiber and cottonized hemp. In
some quarters it is also believed that the recent order expelling foreign Jews
from Italy may impair Italian export business in cotton products.
ORIENT: Mill activity about same in Septe'nber as in August
Cotton mill activity in the Orient is belipv,!d to have shown comparatively
little change in September as compared with Auugust. In China, including
Manchuria, mill c:nsumrntion was estimated at appr-xirately 130,000 bales com-
pared with 135,000 bales in August. Estimates are not now available for mill
consumption in Japan and India, but it is also beli -ei that in each of these
countries there was little change as crpaired with the preceding month.
When compared with September 1937 cotton consumption in the Orient has
shown some very mark-d changes. In China, mill consumption in September was
perhaps tw- or three times as large as the unusually low consumption of a year
earlier but much smaller than in September 1936. In Japan, mill consumption
was probably 35 or 40 percent smaller than in September lawt year and the
smallest for the month for a number of years. On the other hand, cotton con-
sumption in India during; the first 2 months of the current season appears to
have been ccmpnratively little different from the rather high level of consumption
durinr the corresponding months last season.
ATERICAW COTTON: Indicated supply larger than in September
The revised estimate of the 1935-39 world supply of American cotton is
600,000 bales or 2 percent larger than the Sept-mb-r estimate. This increase
was due to an upward revision of a little less than 400,000 bales in the
domestic crop and of a little more than 200,000 bales in the estimated world
carry-over. The revised estimate of supply is 25,700,000 running bales. This
is approximately 1 million balps or 4 percent larger than the 1937-38 supply and
4.1 million bales larger than the 1927-36 average. 5ut it is about one-half
million bales less than the peak supply of 1932-33.
2/ Information received from the Am-rican Consulate General at Milan.
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While the indicated total supply of American cotton has increased some-
what during the past month, it is significant to note that since mid-Sept'-mber
the reported quantity of cotton held as collat,,ral against Government loans
has increased by an amount considerably greater than the indicated increase in
total supply. On October 20, the Corinodity Credit Corporation had received
reports on a total of nearly 1,400,000 ba.les from the 1938 crop pledged on
Government loans compared id th only 2,000 beles up to September 22, These
stocks together with a total of a little less than 7 million bales of Government-
loan stocks which were produced prior to 1938 gave a total of about 8,350,000
bales of the reported Government-loan stocks on October 18. In addition, it
is believed that there were considerable quantities of the 1938 crop which
had been pledged on Government loans, reports for which had not at that time
been received by the Commodity Credit Corporation. At the end of October last
year and the year before, Government-loan stocks were reported at 2,818,000
and 3,021,000 bales, respectively.
FOREIGN COTTON: Rerorts continue to indicnte substantial reduction
in 193-39 crop
A recent official estimate from EFypt, estimating the l933-39 crop at
1,627,000 bales of 478 pounds net, indicated a reduction of 29 p'rc.nt from the
record crop of 2,2S2,000 bales the previous s-ason. This wss a. somewhat greater
reduction than had previously been anticipated. In zrrt-.ern Brazil the esti-
mated production for the current season is 669,000 bales and 6 percent smaller
than that cf 1937-39, and in Mexico a reduction of 80,000 bales also repre-
sented a marked (24 percent) decline. These reductions together with a
reduction of 1,400,000 bples or 39 p-rcent in the estimated Chinese crop indicate
a substantial reduction in total foreign production, despite any increases
which seem likely to occur in other countries. It still seems quite likely,
however, that the decline in foreir-n production may be less than the increase
which occurred in the carry-over at the beginning of the season, thereby giving
a somewhat largr supply for the current season than the record supply of
UNIVERSITY OF FLORIDA
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