UNION COUNTY, ARK., January 5, 1865.

President DAVIS:

SIR: The cotton speculation on the Mississippi River has been carried on for the last ten or twelve months on a very extensive scale, under the pretense of obtaining clothing for the army, which has had, and is still having, a very demoralizing influence in the Confederate Army in the Trans-Mississippi District. In my opinion nothing but the timely movement of General Steele from Little Rock last spring, in the direction of Shreveport, ever prevented this army from becoming completely demoralized, and disbanding and going home. The same influence is at work now. The soldiers, I am sorry to say, are deserting and going home and to the enemy in consequence of the cotton speculation that is now going on the Mississippi River, and unless there is a stop put to it I fear the consequences. Last spring a Mr. Chttisto (a considerable stage contractor) and others, sold thousands of bales of cotton to the enemy on the Mississippi River. He had, I understand, permission from General E. Kirby Smith to pass any amount of cotton through our lines and sell to the Federals, for the purpose of procuring for the soldiers, or cotton cars or medicines has ever been received that I am aware of. This fall General E. Kirby Smith has appointed Colonel Polk the head of the Cotton Bureau established on or near the Mississippi River. Colonel Parsons was ordered to report to Colonel Polk to protect the cotton trade that is carried on with the enemy. The trade is carried on, as I understand, in the following manner: Each planter or individual who has cotton to sell is first required to give or make a present of one half of his cotton to the Government of the Confederate States without any compensation, the remaining half he then has the privilege of selling to whom he pleases under the permit and protection of General Smith. Thousands of bales of cotton have recently been sold to the enemy in this way. The wagons are guarded and escorted to the river by our soldiers. The above statement I submit to you for your consideration. The whole matter can be clearly established by abundant proof. There is, I presume, a large quantity of the cotton formerly purchased by the Confederate States of America returned to Richmond as being burned. A large quantity of the cotton so returned has been stolen, and a portion sold to the enemy. There is yet remaining in the country a good portion of the cotton, which might be brought to light by a strict investigation, and unless the cotton trade is stopped I would not give the Government (comparatively speaking) much for the cotton which she owns in this country. The above statement I respectfully submit to you for your consideration.

Very respectfully, your obedient servant,

ROBT. W. McHENRY.

[Indorsement.]

True copy respectfully furnished Major General H. W. Halleck, Chief of Staff, for information.

J. J. REYNOLDS,

Major-General, Commanding Department.

[JANUARY 5, 1865. -For Buckner to Belton, relative to transfer of troops to east bank of the Mississippi, see Vol. XLV, Part II, p. 765.]