COMMODITIES: The Big Shake-Out

It had looked as if the worst were over, for the time being. Cotton prices, which had cracked wide open a fortnight ago, had steadied. But last week prices of cotton futures plummeted again. For two days they dropped the daily legal limit: $10 a bale. As December futures worth 39¢ a pound four weeks ago, hit 29¢, the panicky exchanges suspended trading for a day, for the third time in two weeks.

This time there was no bigtime speculator to blame, like New Orleans’ Tom Jordan (TIME, Oct. 28). (Tom Jordan, who lost heavily in cotton, put his New York Stock Exchange seat on the block.) But the cotton market was still full of little Tom Jordans. While ceilings were slapped on other major commodities and trading in the stockmarket was put on a cash basis, cotton had been free as a breeze. It could be bought on approximately a 10% margin; it was the speculator’s delight.

But when overpriced cotton first started to fall, it caught the hordes of little speculators with no spare cash to protect their holdings. They were ruthlessly sold out by cotton brokers, and this, according to some cotton men, caused the second drop last week. A Memphis cotton man explained: “It’s like a crap game—if you get caught, you have to get out.”

Many a grower, who feared that a bad crash in cotton might still be ahead, began mumbling ephus-iphus-ophus, a meaningless phrase that Southern crapshooters use while making a critical roll. Many a worried millowner and converter, hedging to protect heavy inventories of high-priced cotton, helped cotton down by feverishly selling futures.

Old Sounds. As the panic spread, the South’s cotton patriots howled for the Government to do something about cotton as loudly as they had once howled to leave it alone. To Southern Congressmen, a free market was fine as long as prices were rising and consumers were paying the freight, intolerable when prices were falling. Cried Oklahoma’s Elmer Thomas: The Commodity Credit Corp. should buy up a million bales at parity to 1) create an artificial shortage and 2) force up the price. Others demanded that OPA lift its 120-day limit on mill pricing of finished textiles, thus permit mills to extend their inventories. Walter F. George of Georgia wanted all OPA ceilings taken off cotton goods.

In the uproar, the exchanges opened again. To everyone’s relief, cotton started up again as manufacturers, buoyed by prospects of decontrol, bought heavily. OPA gave support to their confidence by taking off its 120-day rule. There were more gladsome rumors that cotton might soon be decontrolled completely at the manufacturing level.

New Tune. There was some chance it might be, if the drop in prices brought out enough hoarded cotton goods. There was little doubt that large quantities (one estimate was 1,000,000,000 yards) had been held back in hope of higher prices. OPA had been required to adjust the price of cotton goods upward every month, in line with the rise in raw cotton. This month, for the first time in months, OPA has not had to raise the price. Now, in fear that the peak had been passed, manufacturers were disgorging.

It was still too early to tell whether raw cotton prices had stabilized. But the wild gyrations had taught businessmen what many had almost forgotten in the years of controlled markets. In a free market, prices can go down, as well as up.