Guaranty Trust Company of New York

“ At no point in the progress from seed to cloth is the capital represented by the cotton necessarily or even customarily tied up. And not only may the cotton itself at any stage be the basis of credit accommodation, but also, the actual added value which the labor of any factor in the chain may give to the cotton may itself be realized upon in advance. ”

“ If a buyer, whether he be retailer, jobber, converter, or what not, wishes to secure goods of a certain kind, he would have a very difficult task if he had to canvass the entire market, and ascertain what was being offered. ”

“ NO industry shows better than the cotton industry the economic importance of banking service. No industry, perhaps, utilizes to such a complete extent the modern instruments of credit, nor is so dependent upon these instruments for its proper functioning. ”

“ The cotton, in being separated from its seeds, has lost about two-thirds of its weight. But the first process in the long series that manufacturing entails has been completed, and the cotton is ready to begin its long journey to the mill. It is usually carted to the nearest railroad station, and from there shipped to the compressing point.
The small farmer almost always gets his money for the cotton as it leaves the gin. His interest in it, therefore, is ended when the buyer there pays him the current price. The cotton is a market commodity from that time forth. ”

“ On the west coast of South America, as in the Manila market, there are established American trading firms that are doing extensive development work and their efforts have produced favorable results. In the other Latin-American markets there are practically no local American firms and in none of them have the possibilities of the trade been more than touched.
The general opinion seems to be that if the United States is to keep what she has gained by the war in the cotton goods trade the same care and aggressiveness will have to be shown in the foreign as in the domestic trade. ”

“ The New Orleans market is a true trader’s market. The great bulk of the sales made on the New Orleans floor are bona-fide sales, in which cotton actually changes hands. The New York market on the other hand is a merchants’ and manufacturers’ market, in which business transactions are protected against loss by the purchase or sale of "futures", though, of course, there is always a large amount of speculating. Delivery is rarely demanded. The function of the exchange, therefore, is largely that of insurance. ”

“ It is perhaps advisable, however, even at the risk of some repetition, to give a quick survey of the financial and credit aspects of the industry as a whole from the time the cotton is placed in the ground up to the actual sale to the cutter-up or the jobber.
The utilization of credit begins, as we have seen, with the very planting of the crop. Many of the growers, even those who own their farms, are men of limited means, and are not able to pay for the necessaries of life and of labor during the long growing season. ”

“ It is customary to plant cotton in a slightly raised bed, in order that thinning may be more easily done, and that the soil may be more quickly warmed. Much planting is still done by hand, one man dropping the seeds in the long straight furrow and another following close behind him with a hoe, covering them up; but of late years the one-horse planter and the two-horse combined lister and planter have come into vogue, and, now that the tractor is both cheap and serviceable, it is possible to plant two or more rows at a time. ”

“ The factor often provides a store, together with a complete selling and office force, and every facility for receiving, storing, selling, and shipping the goods, and for financing the business. The salesmen of the house travel throughout the country, reaching all the important markets, and the managers of the different departments, who thus understand the needs of the market, are in a position to advise the mill with intelligence and exactness as to the kind of goods which should be made to meet the requirements of the trade. ”

“ Numerous mills, both large and small, manufacturing, principally, goods of a staple grade, which may either be of fine or coarse character, sell their entire product in the gray, or unfinished state, because they do not wish to burden themselves with the task of putting the goods through the various finishing treatments necessary to fit them for the market. This method of disposing of the product appeals to many for it reduces the manufacturing operations to the spinning of the yarn, and to the weaving of the cloth. ”

“ The wealth of the world—at least up to the time of the Great War—was constantly increasing and while there is little likelihood that the demand for the coarser grades of goods will fall off, the need for finer stuffs, not only in the United States, but abroad, is constantly growing. The greatest development of the South is probably still to come.
The locations of the world’s cotton markets have been dictated by the location of the growing fields and the manufacturing centers. ”

“ There are no more important selling organizations for textiles than these dry goods commission houses, many of them having an immense and profitable turnover, and their businesses are conducted on a very high plane of efficiency, and probity, although, in itself, there are many evils attendant upon this method of the distribution of merchandise, and which exercise at times a most adverse influence upon the well being of the mills whose product is thus disposed of. ”

“ Thus, while the South is consuming an ever larger proportion of the cotton crop, she is still far from receiving for her product the money that comes to the New Englander, who with a higher grade of labor and greater variation of output is constantly catering, with dress fabrics and fine stuffs of various kinds, to a discriminating well-to-do patronage. ”

“ The average mill does not have a working capital large enough to enable it to tie up the thousands of dollars necessary for such a proceeding, as well as the funds which must constantly be paid out for wages, for operation expenses of all kinds, for upkeep, and all other overhead. Mills, as a matter of fact, are frequent borrowers, either from general banks, or from textile banks or factors, or from their selling agents, who, as we have seen, combine their primary and original function of selling with that of supplying financial assistance. ”

“ If, however, the manufacturer sells "futures" for the succeeding months to the extent of the cotton which he would require each month to manufacture the goods, he can run his machinery as usual and have a perfectly free mind, as he has safeguarded himself against any loss due to a falling value of the raw material. Suppose, for instance, the cotton market fell off, say one cent a pound each month, with a corresponding fall in the value of the woven goods. ”

“ The prices at which the goods are to be sold are fixed by the mill, but, of course, they will finally sell at prices determined by the market conditions. As the goods are sold, the amounts which they bring are credited to the mill, less whatever has been advanced against them. The selling agent also stands ready, no matter on what time and terms the goods may be sold, to credit the mill with the net value of the sale, less 6% interest for the unexpired time within which the customer may pay, and from this interest charge also he secures part of his return. ”

“ There were in the United States, in 1917, a total of 24,272 ginneries, of which 3,921 were idle. Each active gin produced an average of 526 bales running bales of cotton. The number of gins shows a tendency to decrease every year, not rapidly, but surely, and this despite the opposite tendency of the crop. The Whitney gin of the old days has been improved beyond the dreams of its inventor. He boasted that one man could do as much with his machine as ten men without it. Today’s gin averages about five bales a day—a quantity which the negro of old would find difficult to turn out in a year. ”

“ Mills, manufacturing a limited number of plain fabrics, and which do not sell through brokers, may also be without representatives in the primary goods market, and will dispose of their product directly from the mills, partly by correspondence, and partly through the efforts of their travelers. The great mass of the mills, however, are regularly and efficiently represented in the great central goods markets, principally New York, though also in Boston, Philadelphia, Baltimore, and elsewhere, and their selling agencies are very highly organized institutions. ”

“ The converter sells to the cutting-up houses, to jobbers, and to retailers, or, in fact, to whatever trade he seeks. Large and profitable businesses have thus been built up. Many converters have adopted their own distinctive trade marks, and since the goods that they handle are known by these trade marks, the identity of the mill which made them originally is often entirely unknown to the ultimate consumer. The converter can give his business to whatever mill, at the time, will give him the best value for his money. ”

“ For the cotton merchant, the situation as it develops is approximately this: buying, as he must, all grades and quantities of cotton, he may have an immediate market with the spinners whom he serves for only certain of these grades, and thus may have left on his hands a large supply of cotton of other grades which came to him in his purchases which he has no call for at the time. These "overs" are subject to the risk of a decline in value unless the merchant can find some way to protect himself. ”

“ If the gin warehouse is available, and he desires to wait for a more favorable opportunity to sell, he may store the cotton, taking a gin receipt for it, against which the cotton will eventually be delivered. The gin receipt may be collateral for a loan from a cotton factor, or from a local bank.
Thus, it will be seen that the grower receives accommodation throughout his season, and is paid cash for his product when it is delivered. This arrangement puts a heavy strain upon the cotton buyers, particularly upon those who deal in large lots for the mills. ”

“ THE output of the manufacturer finds its way to the ultimate consumer through a variety of channels. What these are will depend upon the manner in which the various mills are organized, and their respective policies as to the marketing of their products. Some mills, usually very large organizations, will have plants completely equipped, in every department, spinning, weaving, dyeing, printing, finishing, etc., and will process all of their goods themselves in every detail, offering them on the market in their finished form. ”

“ Operating at an assured profit they were able to learn the markets without the long and discouraging fight which would have been necessary had the competitive power of the other nations been at full force. If, as seems likely, the economic forces which projected the United States so suddenly and dramatically into the world’s markets shall continue to operate, then the future will see a further development of our sales. ”

“ The other countries of Europe have developed a spinning industry by no means inconsiderable. American cotton is sent to almost all those European countries which spin and weave.
Such a movement had of course a profound effect upon the currents of world trade. The cotton crop is the second in value of all the crops produced in the United States, and such a large part of it is exported that the credit it gives to its sellers enables them to buy in return some of the most valuable of the products manufactured in Europe. ”

“ The manufacturer’s hedging is necessarily somewhat different in practice, though the same in principle. If he accepts orders for cloth requiring more cotton than is being held in his warehouse, he may buy futures contracts to the amount of the additional cotton he will need. Then in the event that his actual purchase of cotton may be at a figure which would tend to reduce or eliminate his profits on the sale of the cloth, already fixed by contract, he may sell his futures contract at a corresponding profit, thereby preventing loss. ”

“ The planter will tell you that he would be willing to stand the boll weevil, the dropped bolls, the extra cultivations, and all the remainder of it, if he could only be sure that cotton which did mature would be picked when it should be picked, and picked with rapidity and care. Picking is the most laborious, as it is the most picturesque operation on the plantation. Many types of machine pickers have been introduced, but there are few planters who will admit that any of them suits his particular needs. ”

“ The chief factor in the growth of the American industry was probably not the nearness of the source of supply, cheap fuel or labor, nor any of these factors which operated in the case of England, such as climate, geographical position, and shipping control, but more than anything 14 else the presence of a market close at hand which grew so rapidly, more rapidly indeed than the industry could grow to meet it. ”

“ The great exchanges, and the New York Exchange in particular, are thus used by cotton merchants and manufacturers in every part of the world to protect themselves in their buying and selling operations. The value of middling cotton in New York is kept upon par with the value of the same cotton in any growing or manufacturing point, such factors as freight, insurance, brokerage, etc., being allowed for in the quoted price. ”

“ In the performance of this function, and in order that the supply of cotton may be fed out exactly as it is needed by the manufacturers, the cotton merchants have found it convenient, and even necessary to establish great common markets where they may meet and enter into the transactions with each other and the whole world which are necessary to bring the cotton into the channels of commerce and keep it moving to its multitudinous destinations. ”

“ When goods are charged out, the bills are payable to the commission house, and so, as far as the customer is concerned, the commission house is the principal in the transaction. In many cases certain modified arrangements are made, but in most instances the business is conducted as herein described, and it may fairly be said that the bulk of the dry goods of all kinds produced in the United States finds its way into the market through commission house channels. ”