Commodities: The Last Boll

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The U.S. Government's cotton policy is a crazy quilt that would put even Rumpelstiltskin in stitches—and it costs the U.S. taxpayer $500 million a year. Congress has piled subsidy on top of subsidy, seems to think up a new price prop every year.

First the Government fixed the price of domestic cotton at 32½¢ a lb., which is 8½¢ above the present world market price. Then it has been paying an 8½¢ subsidy to exporters so that they can sell U.S. cotton competitively at the world price. But U.S. textile manufacturers have been complaining that foreign textile makers can thus buy U.S. cotton cheaper than they can—and the Government has now devised still an other subsidy to meet their complaints. Beginning Aug. 1, it will drop the farmers' support price 2½¢ to 30¢, automatically lowering the subsidy to exporters by 2½. At the same time it will grant U.S. manufacturers a new subsidy of 6½¢ a lb. so that they will be able to buy U.S. cotton at the cheaper world price. The effect will be to create three different payouts so that sellers of cotton will get 30¢ a lb. but buyers will only have to pay the prevailing world rate, which currently fluctuates between 23½ and 24¢.

The new system last week proved to be the last boll for the 93-year-old New Orleans Cotton Exchange, which closed its doors to trading. Because the price of cotton has been so firmly fixed, big dealers no longer have to go to the exchange to buy futures contracts to hedge against possible fluctuations. Futures trading on the New Orleans exchange dropped from 12 million bales a decade ago to only 18,000 last year. The exchange did not take its closing easily, planted full-page ads in many newspapers to attack the situation. After suggesting that Secretary of Agriculture Orville Freeman is either "unknowledgeable" or "a demagogue," the ad charged that his subsidies were creating a "unique substitute for the free enterprise system."

That left only one remaining cotton futures exchange—the New York exchange, whose business has dwindled from 33 million bales in 1953 to 928,000 in 1963. Its leaders are negotiating with the Agriculture Department in hopes of finding a way to survive, but prospects are dim. The subsidy system has achieved stability for the nation's No. 1 fiber, but the cost in money and market freedom is high.