TO THE FARMER

Each individual farmer is urged to adjust his farming program in 1931 so as to produce cotton only on the more fertile land, thereby reducing the cost per pound of the cotton produced. This of necessity is a year of retrenchment and reduction in cash outlay for food, feed, and fertilizer. The more the farm can be made to produce of the needed food, feed, and soil-building crops, the greater will be the reduction in cash expenses during a period of relatively low cotton prices and reduced income from cotton.

An increase in production of vegetables, eggs, poultry, hogs, and milk for home use, and for local markets where they exist, appears to be a sound program of farming in light of the future outlook for cotton. Farmers who are in position to increase their production of hogs in 1931 probably will find it profitable to do so.

Southern farms producing only cotton and corn do not provide full time all-year-around employment for either man labor, power, or equipment. The addition of food, feed, soil-building crops, and livestock enterprises makes possible a more efficient use of available

resources.

There is considerable room for improvement of the staple length of cotton in areas where cotton of seven-eighths inch or less is now grown. Improved high-yielding varieties of about 1-inch staple are available in many portions of the Cotton Belt. The cotton cooperatives enable a farmer to obtain the full central market premium for the better cotton.

In looking ahead to relatively low cotton prices during the next 10 years, farmers can do much toward reducing the cost per pound of growing cotton, and toward decreasing cash expenses by: (1) Building up soil fertility through use of legumes and farm manures; (2) using pure seed and maintaining its purity by cooperating with other growers in planting only one variety in the territory served by a single gin; (3) planning the arrangement of fields so as to provide for greater use of labor-saving machinery and the cultivation of larger fields; and (4) increasing the number of poultry, hogs, and milk cows as a source of food and also for additional cash income where market facilities permit.

Such a long-time program will provide insurance against low farm incomes in recurring years of unusually poor cotton prices, and will go far toward improving the standard of living of farmers and farm laborers. It will serve to eliminate from cotton growing the less fertile fields of the South and thereby reduce the cost per pound of producing cotton, as well as the danger of excessive production such as exists with the acreage that has been planted to cotton in recent years.

TO THE BANKER

In view of the possible continuation of relatively low prices of cotton for the 1931 crop and the prospective lower level of cotton prices over the next few years, the bankers of the South are urged to assist farmers in lowering the cost of producing cotton.

Progress can be made in 1931 in the direction of lowering costs by eliminating from cotton growing, so far as practicable, the less fertile and less productive land on each farm, as well as the less productive farms. The high-cost acres will be eliminated in the course of time. The practical procedure is to hasten this transition as much as possible.

Financing for soil-building and feed crops on the less fertile land will hold this kind of land out of cotton production in 1931 and build up a reserve of soil fertility for use in 1932 and later. Financing the purchase and use of labor-saving machinery for farmers who are in position to use such machinery to advantage will tend to lower production costs not only for 1931 but in future years.

The use of improved high-yielding seed, of varieties of about 1-inch staple, will tend to increase the value and price of cotton to be sold next year.

From the standpoint of long-time policy the use of pure seed is of great importance as affecting both quality of cotton and costs of production. To attain satisfactory results only one variety should be planted in the territory served by a single gin. Bankers can assist materially in extending the practice of one-variety communities and the use of pure, tested seed.

Farmers who are willing to reduce their cash outlay for 1931 and in future years (by increasing the production of vegetable and feed crops, poultry, hogs, and milk for home use) are likely to prove a better credit risk next year and over the next few years than farmers who continue on the old basis of cotton and corn. The farmer who can add some other source of cash income, such as hogs, poultry, eggs, or milk, where market conditions permit, will probably be in a much stronger financial position five years from now than his neighbor who depends entirely on cotton for cash income.

Wealth is low and income small in most communities in the South, because of the low average production per man. One man should use more power in farming than one mule can supply. This is a time of mechanized agriculture. The "1-man, 1-mule" farmer or laborer is at a serious disadvantage and can maintain only a relatively low standard of living for himself and his family. Cottoncorn farming does not provide full-time year-around employment for farm labor.

Bankers of the South are urged to take into consideration both the immediate and the long-time outlook in financing farmers in their locality. Bankers have a great responsibility in directing the use of credit resources in 1931 and later, in order that the cost of producing cotton may be lowered, the staple length improved, the less fertile lands eliminated from cotton growing until their fertility can be built up by the use of legumes, and the less efficient farmer definitely started on some program which will enable him to improve his own income and his standard of living.

RISK OF LOW COTTON PRICES

During the last 40 years cotton prices have been relatively low in 9 or 10 years, or about once in 3 to 6 years. During this 40-year period low prices of cotton have prevailed for only 1 year at a time; in no year, however, have the underlying economic circumstances been exactly the same as at the present time. It is entirely possible that relatively low cotton prices may prevail for two years in succession. Growers know what has happened in years of low prices of cotton for the belt as a whole. In many sections of the South when two years of crop failure have come in succession, banks have failed and farmers and laborers have moved into other areas. What would happen if both 1930 and 1931 should be years of low cotton prices? It would bring economic ruin, not only to a large number of southern farmers but to the business interests of the South as well.

Looking back through experiences of the last 40 years it would seem that the production of cotton is subject to two severe hazards: (1) Greatly decreased yields per acre as a result of boll-weevil damage, as in 1921 and 1922, and (2) recurring years of low cotton prices and reduced farm income. Low prices may be the result of large production and supply, or of business depression which reduces demand, or of a combination of these two factors. In any industry which is subject to recurring hazard some form of insurance is usually devised. In the Great Plains States of the West many farmers carry cyclone insurance. In other areas hail insurance is carried by farmers as a protection against loss from damage by hail. Fire insurance is commonly used by farmers as well as business men. The southern farmer needs some form of cotton-price insurance, some form of insurance that will protect his income and help him maintain his standard of living in years of low cotton prices.

The agricultural marketing act provides for the development of some form of price insurance. No insurance agencies, however, were willing to take the risk a year ago. If they had attempted at that time to insure the prices of cotton and wheat, they would have been bankrupt this fall as a result of the decline in prices which has occurred during the last 12 months. The risk involved is great and, consequently, the premium or cost of such insurance must necessarily be extremely high, higher probably than farmers would be willing to pay.

There is, however, a form of income insurance which many southern farmers already are carrying. It consists of a well-balanced farm program that provides for the production of food and feed crops needed at home and, in many cases, an additional source of cash income. This program can be depended upon to help maintain the standard of living as well as the net farm income even when cotton prices are low. Such a program of income insurance has been advocated in the South for the last hundred years or more. These years of recurring low prices come at intervals of from three to six years; yet many farmers have never felt it necessary to provide in advance for these lean years.

The experiment stations, agricultural colleges, and the extension services of the States, as well as the United States Department of

Agriculture, have been encouraging southern farmers to grow more of the needed food and feed crops which would enable them to avoid the actual human suffering and financial loss that occur in years of low cotton prices. The use of food and feed crops and increased production of livestock and livestock products, for home and local use, would automatically reduce the acreage of cotton to a point where production would be much more profitable than it is on the present acreage. Such a program would also tend to build up soil fertility, thereby decreasing the cost of producing cotton. The cash outlay for feed and food would be reduced and a higher standard of living maintained, especially in years of low income from cotton.

In 1931 an expansion in hog production is warranted in those areas where feed is available, as in the Carolinas and parts of Georgia. Many farmers will benefit from increased production of hogs in these States in the coming year. The outlook is for higher hog prices next winter than those prevailing at present. This will mean an increase in farm income for farmers who are expanding their production of hogs for market, but an increase in living costs for the farmer who buys his meat.

COTTON SITUATION

The immediate difficulty in the South at the present time is the greatly reduced buying power due to the marked fall in the prices of cotton, tobacco, and wheat. The decline in wheat prices is due primarily to overproduction. Declines in cotton and tobacco prices have been unaccompanied by decreased production.

The price of any agricultural commodity such as cotton is ordinarily determined by factors which affect the demand for raw cotton and the supply available for consumption. In some cases, as in the present and in 1893 and 1921, prices of cotton are low mainly because of a great reduction in demand for raw cotton, in consequence of severe business depression. In others, as in 1926, low prices of cotton are chiefly the result of extraordinary abundance of supplies.

The low prices of cotton in the season 1926-27 were brought about, in a period of active business, by supplies much in excess of those available this year. The crop of 1925 had been exceeded only by the crop of 1914 and, despite increased consumption of American cotton during 1925-26, there was an increase in world carry-over of 2,100,000 bales of American cotton into the crop year 1926. The large production of 18,000,000 bales, in 1926, was the result of the largest acreage on record as well as the highest yield per acre since the boll weevil had become a serious factor in the South. The combination of a substantial carry-over from the 1925-26 season and a bumper crop in 1926 resulted in a record total supply of 23,700,000 bales of American cotton for 1926-27. (See fig. 1 for a comparison of the supply of American cotton from 1920 to date.) As a result of this large supply the average price of middling 7-inch cotton in New Orleans declined from 19.7 cents per pound for the crop year 1925-26 to 14.7 cents for the crop year 1926–27.

BUSINESS RECESSION AND DEPRESSION

For the season of 1929-30 the total supply of American cotton was 19,200,000 bales, the smallest in five years. The average price of 8inch middling cotton at New Orleans for the season, however, was only 16.2 cents per pound and the farm price was 16.8 cents. This was much lower than the average price at New Orleans of 19 cents and the farm price of 18 cents for the 1928 crop. This marked decline in the price of cotton took place in the face of stabilization measures taken by the Federal Farm Board, primarily because of the rapid decline in business activity which resulted in a greatly decreased demand for American cotton both at home and abroad.

The present business recession is world-wide in scope. The decline in business activity apparently started in Germany and Central Europe. (Fig. 2.) It did not begin in the United States until the middle of 1929. The business recession in this country did not become serious until the break in the stock market in November, 1929. Some recovery was made in the early part of 1930, but further recession followed during the summer and fall of 1930. (Fig. 3.) In Japan business activity was well sustained until early in 1930. (Fig. 4.) The last country to feel the effects of business depression was France,

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