First Crack in the Dike

U.S. commodity prices, which have risen sky-high in the last six years, cracked last week. Down, with a resounding crash, tumbled King Cotton. On Tuesday cotton futures fell as much as $2.05 a bale. Next day they flopped $10 a bale, the maximum under exchange rules. In the next two days, prices continued to plummet, $10 a day. On Saturday, the panicky New York Cotton Exchange closed. Chicago and New Orleans followed suit.

What had caused the break from 39.78-c- a lb. to 34.20-c-? Senator Elmer Thomas (who, Columnist Drew Pearson said, had been speculating in the market under his wife's name) charged that the fall was due to a bear raid, set the Department of Agriculture to investigating. The reason was much simpler: cotton prices were too high, had to fall.

King Killer. The man who had helped to topple King Cotton was a speculator, one of the biggest in the U.S., Thomas Jordan of New Orleans. A gambler first and always, he is said to have started with $300 in 1936, built it up by speculation in cotton futures into a paper empire worth millions.

A month ago, Jordan, so the tale went, decided his holdings in cotton futures were too big. He began to liquidate cautiously. Apparently few got wind of it until last week. When the news got out, smaller speculators began to unload, touched off the break. As prices crashed, in spot cotton as well as in futures, Jordan himself was caught in the avalanche and was forced to unload fast. The exchanges, in turn, were forced to close to give dog-tired clerks a chance to catch up.

While the exchanges were closed, Jordan's still huge holdings, estimated at 175,000 bales, were taken off his hands by wealthy Anderson, Clayton & Co. to keep the market from chaos. As the exchange opened again this week, Speculator Jordan, groggy from a reported paper loss of some $5,000,000, said: "I'm completely out of the cotton market."

Even with Jordan out, the market continued to fall, although more slowly. Never under control, cotton prices had zoomed up to a 26-year high of 39.78-c- a lb., thanks to the war and the fact that 1) this year's U.S. crop is the smallest in 25 years and 2) textile mills, in peak production, have been using up cotton at 150% of the peacetime rate. But it was only a question of time till cotton buyers and speculators who had spread themselves too thin realized that the comparatively small U.S. carryover from this year (7,500,000 bales) would nevertheless be ample, and that textile mills were bound to taper buying. That time came last week, with a rush.

Cow Over the Moon. That cotton broke the day after President Truman pulled the plug on controls (see NATIONAL AFFAIRS) was purely coincidental. But it was not so with other commodities. Meat repeated the same didoes as of last July.

On Tuesday, decontrolled meat prices staged the biggest one-day advance in history. But lower-grade beef and average prices soon began to decline under the stampede of animals to stockyards. By week's end, average beef prices were $18 to $23, compared with a former top ceiling of $20.25; hog prices were $22.50 to $23.50. Old ceiling: $16.25.

In the belief that the stampede would slash future demands for feed, corn prices dropped 32-c- a bushel. Wheat was down also, along with oats. By week's end, the Dow-Jones commodity-futures index had fallen seven points, the biggest since 1933 when the index was started.

1919 Again. To some, the parallel between last week and 1919--when the fall of commodity prices heralded the 1920 "snap" depression--was so clear that one U.S. Department of Commerce expert remarked: "If a modern Rip Van Winkle had gone to sleep in 1919 . . . and awakened in 1946, he would feel very much at home."

Actually the fall of commodity prices now might be a blessing in disguise. For consumers, it should eventually mean lower prices for cotton goods and many other items. For businessmen it was a clear warning. The drop in commodity prices, which almost everyone had forecast, had started. But it had started months sooner than expected. The drop might bring on a readjustment of prices sooner (there was some betting that the recession might come now in four months). But the sooner it came, the less severe the adjustment of prices would be. And the less severe it was, the sooner the U.S. could get over it.

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