5. Buyers of Raw Cotton
Storekeepers as Local Buyers
The small planters of the South are usually unable to finance themselves independently through the growing and picking seasons. Consequently the local store-keeper, from whom the planters buy their supplies, usually extends credit in the form of an open account and so becomes the first middleman. Not infrequently the store-keeper will accept cotton rather than money in settlement of his accounts, and where he follows this practice he becomes what is known as a local buyer. When he has accumulated sufficient cotton he sells either to an intermediate buyer, or to the buyer for some merchant or mill.
Large Growers
In the case of the larger grower, or the syndicate of growers, the local buyer is usually eliminated. These planters obtain their credit from the large merchant buyers, who in turn are carried by their banks.
Intermediate Buyers
Very frequently the local buyers are scattered so thickly through a neighborhood, and each accumulate such small and heterogeneous lots of cotton that an intermediate buyer finds his way into the natural order. Sometimes the intermediate is merely a “scalper” who buys from the local dealer and sells to merchant buyers. In other cases, notably in Texas, he acts as a concentrating agent, buying at local points from growers and selling, usually at compress points, to representatives of merchants or mills. In the latter case he is referred to as a “street buyer.”
Financing Early Stages
Where the grower surrenders his cotton to the local dealer the latter usually has it ginned, but in cases where the planter is able to finance himself he takes his cotton to the gin himself, pays for the ginning, and either sells in so-called gin bales, (before they are compressed) or, if a warehouse is available at the gin or compress point, holds his cotton until he can obtain a satisfactory price for it. The local banks perform a very important part of the crop financing at this stage, for, since the grower sells for cash, the buyers require advances. These are made by the Southern banks against buyers’ tickets, showing cotton purchased, against gin receipts, warehouse receipts, compress receipts, and finally when the cotton is shipped, against bills of lading.
The Square Bale
The Merchant Buyer’s Importance
The Take-up Man
The large cotton merchants fulfill a very essential function in that they are responsible for the concentration of the raw material and for its redistribution into the proper channels of manufacture. They maintain branches and representatives throughout the entire cotton growing areas and are directly connected by wire with all the important exchanges. By far the bulk of their buying is done after the close of the New York Exchange from local and intermediate buyers who during the day have been acquiring mixed lots of all sorts. The merchant’s representative, known as the take-up man, goes over and classifies the cotton accumulated by the local buyers, takes a sample from each bale which he tags with a duplicate of the shipping tag he places on the bale itself, and then ships the cotton to the concentration point and the samples to the office at that place. He pays the local buyer by draft or check.
Even-running Lots from Compress Point
The office at the concentration point, usually where there is a compress, has in the meantime received instructions from the head office as to how to make up the various lots. As the bales are compressed they are collected into even-running lots of certain grades for which the head office has received inquiries from mills, and are shipped out in this way. The branch office will ship according to instructions forwarding the bills of lading with invoices and sight drafts to the head office or to some bank.
Cooperative Marketing
Since the war, and particularly in the last three years, the co-operative movement has in some sections developed to such an extent as to supplant in large part the old system of marketing. In Texas, Georgia, and other States, a large part of the crop is now concentrated, financed, and sold through these extensive organizations of growers either direct to mills, or to large merchants and exporters.
Almost all cotton is bought on Middling Basis, but some is taken on sample with guarantees, (often a dangerous practice for both parties), and some is taken at a fixed price per bale.
Direct Buying
A few Southern mills buy direct from nearby growers, but the preponderant majority and practically all the Northern mills obtain their cotton through merchants, or through brokers representing Southern merchants.
We have seen briefly how the cotton is grown and brought to market, but we have still to consider the all important question of what determines the price at which it changes hands.