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Sep 30th, 2011

History of the New Orleans Cotton Exchange


Luis Molina  
Colonel Henry Hester: Original Cotton King of New Orleans

On what was a typical New Orleans winter night on Jan. 31, 1872, Mr. E. H. Sommers had the important duty of addressing a large crowd. This select group of men gave him their strict attention as he proceeded:

“Now, gentlemen. I submit that in the history of the commercial jurisprudence of this or any other continent, you cannot exhibit such a record as is presented you tonight by the New Orleans Cotton Exchange. Just think of it – merchants embracing Russians, Prussians, Swedes, Danes, Poles, French, Austrians, Swiss, Scotch, English, Irish, Yankees, Federals and Confederates – and with this great conglomeration of people handling over one hundred millions of the trade of this city, for the last twelve months you see but one case of difference in any way reported.

Nor can I refrain from expressing my high appreciation of the active, zealous and most skillful management of the Superintendent of this Exchange. Why, sirs, he is a walking encyclopedia of statistics, and so quick and rapid in his movements…No exchange in any city on this or any other continent can furnish such an array of statistics and so admirably arranged as you find them on the boards of this Exchange, and to this, gentlemen, you are indebted to the untiring zeal of your Superintendent, Mr. Hester.”

And with those closing words, the group of men shared in Mr. Sommers’ high praise of the man in focus: Colonel Henry Garretson Hester.

A year prior at 46 Carondelet St. on the 17th day of January, 1871, eighteen New Orleans men comprising of cotton buyers, cotton factors, cotton brokers and bankers began to lay down terms to what would eventually lead to the creation of the New Orleans Cotton Exchange. Their constitution was adopted a few weeks later with 106 signers. On Feb. 20, 1871, in rented rooms at the corner of Carondelet and Gravier, the founding members began the first day of trading, which saw 1,600 bales of cotton futures trades. Over 75 years later that figure would rise to as high as 612,100 bales a day being traded.

What purposes would a cotton exchange serve for the then economically important city of New Orleans? The founding members of the Exchange essentially had two great goals: “First, to collect and disseminate speedy, accurate cotton market information; second, to develop futures trading in cotton as insurance against great risks and losses such as the cotton trade had known, by such stabilization of prices as only futures trading can accomplish.”

As explained in a public relations pamphlet by the NOCE, the Exchange itself neither bought nor sold any cotton nor did it set prices. The prices of cotton were arrived at by open bidding and offering and the Exchange merely recorded and publicized the prices. The institution provided the facilities for buyers, sellers, brokers and other members to carry on the individual business activity in accordance with a strict code of ethics and self-imposed rules established by the

Exchange. This organization was simply a market place where buyers and sellers met. It was a continuous auction for cotton. Naturally, the sellers wanted to sell at the highest price possible and buyers sought to buy at the lowest price possible. When a price was agreed upon, the figure was registered on the Exchange’s quotation board and then broadcast. The main activity on the floor of the Exchange involved the trading of cotton futures. Futures are basically contract amounts of cotton that are bought now for delivery in the future (months) indicated on the quotation board. Another benefit of the Exchange was that it provided a year-round market for sellers and buyers of the crop.

It is no wonder that a commodities market involving cotton would be located in the port city of La Nouvelle-Orléans. A third of the country’s production of the cash crop was transported through the city at the time. However, another major impetus for the creation of the exchange was to compete with the New York Cotton Exchange which opened a year before New Orleans’. There was concern that the Yankees would disrupt cotton market conditions and do more damage to the southern growers of the white, feathery crop.

Thus the creation of the exchange ensued and the first president, Mr. E.H. Sommers, sought the leadership of the financial genius in Colonel Henry Hester to guide the group. Born in New Orleans on Nov.18, 1846, Hester was the son of an Englishman who was a successful realty man. Hester studied law but abandoned those efforts to pursue a newspaper career. For a time he worked for the Price Current, a prominent New Orleans business paper at the time before moving to the Daily Picayune where he rose to financial editor. His reputation as both a financial/commercial expert and a man of ethical standing was so well-known that when the Cotton Exchange was created, the then 24 year-old was immediately approached and hired for the position of Superintendent and then Secretary. He would hold that post for 61 years until his voluntary retirement in 1932.

The Colonel was the reason the Exchange was regarded as a beacon of reliable statistical information regarding the commodity.

His contributions resulted in his attainment of his international reputation as a cotton statistician. The Times-Picayune wrote that, “although he never owned a bale of cotton in his entire life, he was said to have had his finger on every bale of cotton in the world. His fame gained him title of Father of Cotton Statistics.”

Besides his mathematical prowess, the Mason’s high moral character was a major reason why so many people looked to him as an authority. There was an instance in 1915 when the price of cotton was at a low price of six cents per pound. The other experts calculated that demand would only warrant 12 million bales of cotton that year. Hester did his own research and concluded that the demand would actually call for 14 million. He proceeded to report these findings on the Exchange floor and as soon as the wires transmitted his forecast, prices shot up dramatically. A reporter asked him what kind of money he would have made if he telephoned a friend to buy cotton before the announcement. “I would have made hundreds of thousands of dollars but I didn’t.” This potential conflict of interest is the reason he never owned a bale of cotton and he made sure that no other man in his office did either. He would have fired him otherwise and if the Board of Directors did not back up his firing, Hester said, “I would have put on my hat and quit the job myself.”

Hester never owned cotton, and did not allow his workers to do so to avoid a conflict of interest.

Hester’s financial outlooks for cotton were so accurate (and usually transmitted through telegraph which was progressive for the time) that the U.S. government accepted his conclusions as official (Hester also provided his services to the Census Bureau). The Colonel’s contributions thrust New Orleans to the center of cotton trading and other cotton cities like Savannah, Galveston, Mobile and Houston copied his systems because they were so efficient.

On Dec. 20, 1934, after battling a week-old illness, he passed away at the age of 88 at his residence of 2600 Jefferson Ave. In synchronicity it seems, a mere 30 years later, the crumbling of the city’s major financial market ensued. Though the last years of the Exchange saw its demise because of unstable market conditions, overregulation of government, the downward spiral of cotton in the South and other factors, New Orleans can be proud and say that at one time, it competed with New York and other international financial centers by providing the world with its source of market information regarding the cash crop. The cotton king’s life ambition was to make the South the authority on facts pertaining to its great staple. Colonel Hester who regularly enjoyed a fine cigar and shot of liquor was the man responsible and his code of conduct and financial talent can serve as a reminder that great contributors to the world originate from New Orleans.

 
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