Cotton & King

(See front cover) Ten minutes before the short Saturday session officially closed on the New York Cotton Exchange last week, a gong brought trading on the world's biggest cotton futures market to a silent halt. The U. S. Crop Reporting Board, having been locked in secret session in Washington since dawn, was about to release its first estimate of the U. S. cotton crop for the new crop year which opened Aug. 1. Trading also stopped on the country's other two cotton futures markets, in Chicago and New Orleans. On the spot markets scattered throughout the cotton belt the morning's desultory dickering petered out. In Britain the Liverpool Cotton Market had closed for the day, but traders would get the U. S. cotton news after the races and the cricket matches. In Bombay, Shanghai, Osaka the Orient's cotton men roused themselves from bed or stirred impatiently in club chairs. In Egypt, where the world's finest cotton is grown on the banks of the Nile, the cotton men of Alexandria waited dinner.

At noon sharp, Eastern Daylight Saving Time, the figures flashed to the waiting cotton world. It was the Government's guess, the best to be had, that this season's crop in the biggest cotton land in the world would be 12,481,000 bales of about 500 Ib. each.* Last year the crop was 10,638,000 bales. The estimate was a little higher than expected, although Clinton T. Revere, famed cotton expert for the Manhattan firm of Munds, Winslow & Potter, scored a bull's-eye with a private estimate of 12,498,000 bales, only 17,000 above the Government figure. A month ago the Crop Board estimated that this year's cotton acreage was up less than 10% from the 1935-36 season, and cotton prices jumped to 12 3/4-c- per Ib. Last week, as favorable news of crop conditions accumulated in advance of the Government's estimate, the price slipped below 12-c-. After the figures were out cotton dropped still further, opening this week around 11 1/8-c-.

As the cotton season progresses, less & less interest is taken in production, more & more in consumption. Cotton consumption throughout the world in the season just ended set a new high, exceeding even the 1928-29 peak when the world used 25,778,000 bales. Meantime world carry-over has been reduced from a staggering total of 17,600,000 bales in 1932 to about 12,500,000 bales which is not far above normal. In the dark of Depression the U. S. carry-over accounted for no less than 13,000,000 of the world's 17,600,000 bales. Today this U. S. surplus is down to about 7,100,000 which is also not far above normal, even though the Government owns one-half of it.

Lint Land. Before the Crop Board could be locked up for its secret ciphering last week, before field estimators and picked farmers could furnish the figures with which it arrived at its estimate, some 30,000,000 acres of farm land had to be plowed, harrowed and seeded in that area of the continental U. S. where the growing season from frost to frost is at least seven months. Planting started, as it does each season, in Southern Texas in late winter. From there it rolled north with the sun on an ever widening front until the last seed was in the ground before June 1.

A month after planting, the fields were green with sprouting cotton. Then followed weeks of "chopping," which means successive thinning of the cotton plants with a hoe. By mid-summer cultivation was over, and shortly the cotton plants bloomed a cream color, changing finally to red. Then the bloom dropped off, leaving the boll, in which the fibre grows, to mature on the stalk. Like planting, cotton picking starts in Texas, which normally produces one-third of the U. S. crop. Sometimes the first bale--or a bale represented as the first--is sold over & over at pound prices in dollars, not cents, for the benefit of charitable and political organizations. This year the first bale was picked, ginned and baled in Starr County near the Mexican border by June 22. It was raised by one Teofilo Garcia, who has been credited with the first bale twice before.

Cotton is the biggest cash field crop in U. S. agriculture. It is also the biggest single item in U. S. exports. At least 10,000,000 U. S. citizens, white & black, count on cotton for their livelihood. In the South cotton is King, irrespective of price or politics.* The average grower plants 15 to 20 acres. He harvests six or eight bales, which at this year's prices will bring him around $400. His cotton seed, about two pounds for every pound of lint, pays for the ginning, with some left over for pocket money. There are a few tremendous plantations, biggest of which is at Scott, Miss. Its 37,000 acres are owned by Delta & Pine Land Co., which was founded more than two decades ago by British spinners who wanted an assured source of fine Delta cotton. It is managed by Oscar Johnston, also manager of the New Deal Cotton Producers Pool. But of the 2,000,000 U. S. cotton growers only 27% own their own land. The rest are either sharecroppers (35%) or tenant farmers (38%). Their standard equipment is a mule and a large family. They are born poor, die poor.

Except for the relatively rare cotton grower who has enough land and capital to apply modern machinery, the only people who consistently make money out of cotton are those who market the crop.

To get $1,000,000,000 worth of U. S. cotton to market each year requires in infinite combination & permutation the use of gins, warehouses, compresses, ships, barges, railroads, trucks, spot markets, futures markets; the services of dealers, bankers, brokers, buyers, factors, graders, merchants. Most important man in the chain is the merchant. The big cotton merchant can arrange every detail in the complex life of a bale of cotton from the platform of a gin in Georgia to the door of a spinner in Osaka. The biggest cotton merchant in the world is William Lockhart Clayton, No. i man of Anderson, Clayton & Co. of Houston, Tex.

Geography. It is a poor year in which Anderson, Clayton & Co. does not handle 2,000,000 bales of U. S. cotton. It is a poor year in which the firm does not do twice as much business as its nearest private competitor, George H. McFadden & Brother. It has $40,000,000 capital and its credit is good for at least $150,000,000. The list of branches and affiliates stemming from its headquarters in Houston's 16-story Cotton Exchange Building is a complete lesson in world cotton geography. In North America the name Anderson, Clayton & Co. can be found in Montreal, Boston, New Bedford, Providence, Charlotte, Greenville, Gastonia, Atlanta, Memphis, New Orleans, Dallas, Los Angeles, Mexico City and Torreon. In South America the firm has affiliates in Buenos Aires, Lima, Asuncion, Sao Paulo and Recife. Its Far Eastern offices are in Bombay, Shanghai and Osaka. Its Egyptian branch is in Alexandria, its French branch in Le Havre. In Milan it does business as Lamar Fleming & Co., in Liverpool as D. F. Pennefather & Co. Its representatives are scattered from Goteborg, Sweden, to Barcelona, Spain; from Lodz Poland, to Oporto, Portugal.

Last week after a ten-day vacation on a ranch near Las Vegas, N. Mex., with his wife and one of his four daughters, Merchant Clayton returned to his desk in Houston to be on hand, like the world's lesser cotton men, for the Government's estimate. Lamar Fleming Jr., his young partner, who is rated the firm's No. 2 man, saw the figures soon after he debarked from the Enropa in Manhattan. Presumably the partners of Anderson, Clayton & Co. were pleased because a big crop means more cotton to handle. In the seven seasons through 1935 the firm sold more than $1,000,000,000 worth of cotton, yet its total profit was only $13,000,000. Testifying before a Senate committee Will Clayton declared: "We made those profits, by the way, at least half of them, as the result of the Government cotton policy." Mr. Clayton was referring to Herbert Hoover's Farm Board, not to the New Deal's curtailment of production, which he dislikes even more than governmental plunging in the cotton market.

Typist Up. Tall, slim, magnetic, Will Clayton was born 56 years ago on a cotton farm near Tupelo, Miss. His father was a railroad contractor. Son Will left school after the eighth grade, studied shorthand. One of his first customers was William Jennings Bryan, who made him retype a speech because the margins were too narrow. At 15 his astonishing stenographic skill landed him a job in a St. Louis cotton firm. Soon he went to Manhattan as secretary to a cotton man named Lamar Fleming, father of his brilliant young partner. Will Clayton was a model youth. He never smoked, never drank, never swore--and does not to this day. He worked nights, sent money to his mother, put up with a miserable French boarding house in Manhattan to learn another language. Shortly before the company he worked for failed, he went west to Oklahoma City to set himself up as a cotton merchant at 24 under the name Anderson, Clayton & Co. There were two Andersons in the firm--his brother-in-law, Frank E. Anderson, who died in 1924, and his brother-in-law's brother, M. D. Anderson, who is still a partner. Not long after the firm was founded, Will Clayton's own Brother Ben was taken in.

Anderson, Clayton & Co. grew rapidly, taking over gins, branches and business from the defunct firm with which Will Clayton got his start. The firm promoted the round bale (250 Ib.) of uniform consistency which requires only one man to handle it and particularly pleases foreign buyers who deplore the shabby wrapping of the rest of U. S. cotton. Today Anderson, Clayton operate traveling gins in sparsely-settled areas of Mexico, compresses to reduce the size of ordinary gin bales for overseas shipment, warehouses with a capacity of 2,000,000 bales, a barge line on the Ouachita, Mississippi and Warrior Rivers to carry cotton to tidewater. It runs a school to teach the fine art of cotton grading, finances cotton growing in irrigated sections, has even distributed hogs to improve the lot of the cotton grower.

Like any big cotton merchant, Anderson, Clayton & Co. is always operating on the New York Cotton Exchange. Its operations are so tremendous that it has its own separate member firm, Anderson, Clayton & Fleming. But these operations are solely confined to hedging, which is the reverse of speculation.

Hedging is insurance against price changes. When its warehouses are bulging, a 1-c--per-lb. drop in cotton would mean a $10,000,000 loss to Anderson, Clayton if its holdings were not hedged.

Squeezes. In the normal course of hedging operations the cotton merchant sells futures contracts short, but unlike the speculator he actually owns an equivalent amount of real cotton. As one contract matures, say July, he switches into another, say October, to keep his insurance in force. This switching makes the merchant vulnerable because the July contract, which he has to buy back, may be squeezed up at the last moment, whereas the October contract, which he plans to sell, may not rise at all. The only way he might avoid loss is to deliver his real cotton against his contract for future cotton. On the New York Cotton Exchange the rule used to be that the only acceptable place for delivery was the Port of New York. And a good squeeze was so engineered that the merchant could not possibly ship his cotton to arrive in time.

Having been pinched occasionally himself, Will Clayton set out in the 1920's to change this rule. His method was to do his own squeezing but to do it so often, so fast and so hard, that cotton men would rise in arms, force the Exchange to modify the rule. His operations are still referred to by those who got burned as nothing less than "fiendish." In the end he won his point, which was to have certain cities in the South designated as "delivery points" instead of the Port of New York alone. This made it easy for hedging merchants who might be squeezed to deliver against their short sales in a hurry.

As soon as he put over "Southern Delivery," Will Clayton is supposed to have stopped running squeezes for good. But he collected a vast number of enemies in the process, most vociferous of whom were a few New York Cotton Exchange members, and they had the ear of Ellison D. ("Cotton Ed") Smith, senior Senator from South Carolina. Since 1928 there have been three Federal cotton investigations, all apparently for the prime purpose of pinning something on Will Clayton. It is probably the greatest regret of "Cotton Ed" Smith's life that he has never succeeded in catching Will Clayton out of bounds. Anyone with a grudge against the courteous Texan is given a chance to make headlines before the Smith Committee. In the current investigation the best that Senator Smith could do was to produce a Cotton Exchange member who promptly departed for Europe after having accused Will Clayton and little John H. McFadden, then president of the Exchange, of being a two-man cotton monopoly. Last week Jack McFadden went to Houston to give more time to the job of being Will Clayton's biggest competitor.

"I'm Mr. Clayton." Bitter though many a cotton man is on the subject of Will Clayton, Cotton Man, few have anything but respect for Will Clayton, No. i private citizen of the Nation's biggest State. He seldom fails to arouse in people he meets an admiration close to hero worship.

Will Clayton's natural charm has a good deal to do with the hero worship he inspires. Even in offices where instant dismissal would probably follow failure to recognize his humorous eye, his strong, handsome features, his iron-grey hair parted in the middle, he always introduces himself, hat in hand, to receptionist or secretary, "I'm Mr. Clayton."

In Houston he lives simply in a two-story brick house, walks the 48 blocks to his office, contributes to church and charity with the same generosity he shows his employes. On Lookout Mountain, Chattanooga, Tenn., he has a modest summer home. Of close friends he has few and Houston's golf links and clubs see little of him. Politically he is a Democrat, but not, he says, "a New Deal Democrat." His wife, who was Susan Vaughan from Kentucky, is the New Dealer of the family. At the Democratic convention in Philadelphia, Mrs. Clayton was asked about her contribution to the Party treasury, replied that she had been inspired by her husband's announcement that he had joined the Liberty League (from which he has since withdrawn). "Right then & there," said Mrs. Clayton, "I decided to match what he gave [to the Liberty League]. So when my check for a Telephone Company dividend came along, I just sent it to Mr. Farley with a personal check of my own to make up $7,000. I told Mr. Farley I wished I could give $10,000, but the family budget wouldn't stand it."

Cotton is a complicated subject on a domestic basis. On a world scale it is staggering. Aside from the difficulties introduced by foreign exchange and local preferences, international cotton merchants have to think, deal, quote in terms of a thousand different kinds of cotton. In the U. S. alone official standards specify 37 different grades on quality, 20 grades on staple length, offering in combinations no less than 740 possibilities. Will Clayton s not only an international cotton merchant but a profound student of economics. When he travels, usually by plane, his brief case is always jammed with earned tracts. What he learns, what he thinks, he can express with clarity.

U. S, Out. Writing in a special cotton supplement in the New York Journal of Commerce last week, Will Clayton gave he New Deal a hand for the first time in many a season. "The most significant development in cotton in the season just drawing to a close," said he, "is the fact that the Government is rapidly on the way out of the market. Less than a year ago the Government held approximately 6,000,000 bales of spot and future cotton.

The end of the 1935-36 season finds these huge holdings reduced to approximately 3,500,000 bales. . . . Not having been slow to criticize Government entrance into the cotton market, it is a pleasure now to commend the wisdom of decision and the skill of execution in liquidation of Government cotton holdings."

By training, tradition and conviction Will Clayton is a free trader. Any meddling with the economic machine is, to him, the supreme sin. Before the Bankhead Act] before the AAA crop reduction program, before cotton loans were instituted, before the Hoover Farm Board started to thrash around in the futures markets, Will Clay ton's favorite hate was the tariff. Said he, when ploughing-under was rampant: "There is only one means of preserving a correct balance between supply and demand in a great world commodity like cotton, and that is through the corrective influences of competitive price levels established in the free markets of the world -- a harsh method, perhaps, but the only one that works. . . . Our present cotton policy means the complete loss within a comparatively short time of our export markets for cotton." Foreign cotton acreage increases and declines in a remarkably direct proportion to the U. S. price. Of late, foreign cotton production has been rising sharply. But no country today is ready to take over the South's share of the world's cotton. Russia is increasing its production at a tremendous rate but for a closed national economy. India, which is the second largest cotton producer, and China, where the Japanese are encouraging heavy planting at bayonet-point, need their land for food. In Egypt there is a limited amount of Nile water. Nile soil. Only in Brazil and part of the Argentine are there real possibilities of increasing cotton production to the point where the Cotton Belt could be dropped from the list of world cotton exporters. But those areas lack the South's cheap labor. The threat from the Rust cotton picker (TIME, March 23) or improved versions of that machine, is less to employment in the South than in South America where it would overcome the lack of labor.

So long as the U. S. is willing to sell cotton at world prices it can probably save its foreign markets. But to continue to sell at world prices, cotton costs must stay at world costs, which means a low standard of living for the South in perpetuity.

*Two days later the same board predicted a "disaster"' corn crop of 1,439,135,000 bu., worst in 55 years, down 850,000,000 bu. from last year's harvest. *The phrase originated on the floor of the U. S. Senate in 1858 when South Carolina's James Henry Hammond challenged the economic power of the North thus: "You dare not make war on cotton. No power on earth dares to make war upon it. Cotton is King!"

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