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Anderson, Clayton & Co. grew rapidly, taking over gins, branches and business from the defunct firm with which Will Clayton got his start. The firm promoted the round bale (250 Ib.) of uniform consistency which requires only one man to handle it and particularly pleases foreign buyers who deplore the shabby wrapping of the rest of U. S. cotton. Today Anderson, Clayton operate traveling gins in sparsely-settled areas of Mexico, compresses to reduce the size of ordinary gin bales for overseas shipment, warehouses with a capacity of 2,000,000 bales, a barge line on the Ouachita, Mississippi and Warrior Rivers to carry cotton to tidewater. It runs a school to teach the fine art of cotton grading, finances cotton growing in irrigated sections, has even distributed hogs to improve the lot of the cotton grower.
Like any big cotton merchant, Anderson, Clayton & Co. is always operating on the New York Cotton Exchange. Its operations are so tremendous that it has its own separate member firm, Anderson, Clayton & Fleming. But these operations are solely confined to hedging, which is the reverse of speculation.
Hedging is insurance against price changes. When its warehouses are bulging, a 1¢-per-lb. drop in cotton would mean a $10,000,000 loss to Anderson, Clayton if its holdings were not hedged.
Squeezes. In the normal course of hedging operations the cotton merchant sells futures contracts short, but unlike the speculator he actually owns an equivalent amount of real cotton. As one contract matures, say July, he switches into another, say October, to keep his insurance in force. This switching makes the merchant vulnerable because the July contract, which he has to buy back, may be squeezed up at the last moment, whereas the October contract, which he plans to sell, may not rise at all. The only way he might avoid loss is to deliver his real cotton against his contract for future cotton. On the New York Cotton Exchange the rule used to be that the only acceptable place for delivery was the Port of New York. And a good squeeze was so engineered that the merchant could not possibly ship his cotton to arrive in time.
Having been pinched occasionally himself, Will Clayton set out in the 1920's to change this rule. His method was to do his own squeezing but to do it so often, so fast and so hard, that cotton men would rise in arms, force the Exchange to modify the rule. His operations are still referred to by those who got burned as nothing less than "fiendish." In the end he won his point, which was to have certain cities in the South designated as "delivery points" instead of the Port of New York alone. This made it easy for hedging merchants who might be squeezed to deliver against their short sales in a hurry.