grain prices from the course which was anticipated during the opening months of the crop-year. It is the unforeseen occurrences which instill an element of uncertainty into the terminal markets where grain prices are determined.

Relation between Grain Prices in the United States and Liverpool. As the grain surplus of the United States and other grain exporting countries flows mainly toward Great Britain, it has sometimes been assumed that the prices paid at the terminal markets of the United States are fundamentally based upon Liverpool prices; indeed it has been stated that the former are but a calculation arrived at by deducting from the basic prices of the Liverpool market the freight rates and other expenses incident to grain exporting and such profits as grain exporters are able to obtain. Comparison of yearly and monthly average and daily mean prices of wheat in Chicago and Liverpool indicate that wheat prices in these markets are frequently closely related, but that the Chicago market which is representative of the terminal markets of the United States maintains a separate identity. At times the trend of wheat prices at Chicago has differed widely from that of Liverpool prices. The relationship is close when American wheat is on the "export basis," but this price relationship is not invariably maintained and wheat exports fall to a minimum when American wheat is not on that basis. During the nominal pre-war decade of declining wheat exports, there were many periods during which Chicago wheat prices were not in line with the Liverpool market, the bulk of the crop produced east of the Rocky Mountains being retained in the United States at prices determined fundamentally in the terminal markets of the Central West.

When American wheat is on the export basis the prices at the terminal markets are necessarily influenced by the Liverpool market, which receives grain from all the principal surplus wheat producing countries. At such times the price difference or spread must at least be sufficient to cover freight charges and other expenses. The same world conditions, moreover, are then operative both on the Liverpool and the terminal markets of the United States. Even at such times, however, the prices.

of wheat in the open markets of the United States at which American wheat sales as a whole-including domestic and export sales-are made, are not merely a calculation based upon prevailing Liverpool prices. The spread between Liverpool and Chicago, for example, changes frequently; price fluctuations do not always occur simultaneously in the two markets, and sometimes pronounced fluctuations occur at Chicago before they occur at Liverpool. Although the relationship is close when there is a large surplus for exportation, the terminal markets of the United States are so large, their ability to promptly weigh domestic and world conditions is so well developed, and the proportion of the crop retained for home consumption is usually so predominant that wheat prices do not blindly follow the lead of the Liverpool market during periods when export orders are received. When prices in the United States are comparatively high because of dominant local conditions or other reasons, the spread may become so narrow as to restrict further export transactions. When this occurs wheat is not on the export price basis.

The relationship between corn prices in Liverpool and the terminal markets of the United States has also been close. Throughout the thirty years ending with the crop-year 1916-17 price fluctuations varied less than in the case of wheat. The proportion of the world's crop produced in the United States and the proportion of the crop retained for home consumption were normally so large that this price relationship may not be cited as evidence that Liverpool is the dominant price-making market for American corn. The presumption that American corn prices are primarily determined in the terminal markets of the United States and that the Liverpool market follows more frequently than it leads, is further substantiated by a study of monthly average and daily mean price fluctuations during the crop-year. Price changes in the United States frequently precede those in Liverpool, and during the crop-year 1912-13, when it became known that the Argentine crop which is harvested in February and March was unusually large the prices of Plate corn in Liverpool declined during several months while

the prices paid for corn imported from the United States continued to advance. American corn exports as a result were comparatively small but corn prices in the terminal markets of the United States were maintained even when the bumper crop of Argentina was definitely established.

The discrepancies between Chicago and Liverpool prices of oats and barley are wider and more frequent than in case of wheat. Even their yearly average prices, which are an index of the general level of prices, have frequently fluctuated in opposite directions. Those of oats failed to correlate during twelve years and those of barley eleven years, within a thirty year period. Oats and barley exports from the United States have normally been small and have accounted for but a small percentage of the crop, and subject to certain exceptional years, the Liverpool market has not been largely dependent upon American oats and barley. These grains have consequently not been on the export price basis as commonly as wheat, and their prices on the terminal markets of the United States have not been influenced by the Liverpool market so persistently. Nor have American terminal market prices for oats and barley influenced Liverpool prices to the extent that American corn prices have exerted such an influence.

When American oats and barley are on the export basis there is a price relationship between Chicago and Liverpool as in case of wheat, but the oats and barley trades in the markets east of the Rocky Mountains have more frequently been on an almost exclusively domestic basis. Consideration of world as well as domestic conditions in the terminal markets may at such times cause price fluctuations similar to those occuring in Liverpool, but Liverpool prices are not then the basis for price calculations in the United States and the price spread necessary for exportation is not maintained.

Barley prices in the markets of the Pacific Coast have usually been influenced by Liverpool prices to a greater extent than those in the terminal markets of the Central West and eastern seaboard because much of the surplus barley of the Pacific Coast States has regularly been exported. Wheat prices in the Pacific

Coast markets, also, have for the same reason frequently been influenced to a greater extent by Liverpool prices than by the prices prevailing in the great primary grain markets of the Central West.

The inspection and grading of grain, the relations between the speculative exchanges and the sale of grain, and the financing of grain crops and movements, since they are subjects which are not confined to the grain trade, are discussed in subsequent chapters.

BIBLIOGRAPHY

See references appended to Chapter IV.

CHAPTER VI

THE LOCAL COTTON MARKET

The local cotton trade affords another example of how a farm product produced over wide areas by thousands of growers is sold by the producers and begins its journey to its consumers. The cotton crop of the United States is produced by about 1,900,000 growers, is ginned by 25,000 ginneries, stored at 2,700 public storage places, and is handled by many transportation concerns, local buyers, merchants, factors, exporting houses and brokers. The methods of purchasing the cotton crop from the growers, owing to differences in the nature of the commodity, the weaker financial condition of many of the growers, the greater importance of the foreign market, the location of many cotton mills in some of the growing districts, and to trade custom, differ somewhat from those described in connection with the grain trade.

THE COTTON-GROWING BELT

While the area of the cotton-growing region is smaller than that of various grain-producing districts, it has been gradually extended westward from the Carolina seaboards to western Texas and Oklahoma. It includes the region south of an irregular line drawn from southeastern Virginia through the western part of North Carolina, the southern part of Tennessee and Missouri, the northern part of Oklahoma and the southeastern part of New Mexico, a distance of 1,500 miles in length and 500 miles in width (see Map No. IX). Increasing quantities of cotton have also in recent years been grown on the irrigated lands of Arizona and California. The total cotton acreage of the United States during the years immediately preceding the