SUGGESTED IMPROVEMENTS IN CLASSIFICATION.

PROPOSED ESTABLISHMENT OF UNIFORM GRADE STANDARDS.

Numerous suggestions looking to improvement in methods of classification in both the New York and New Orleans markets are discussed in the body of the report. One of these is a recommendation for the establishment of uniform standards of the leading grades in all markets. This is an exceedingly important matter, and, while there are some practical difficulties in the way of its accomplishment, these do not appear to be insurmountable. The establishment of such uniform standards, even if applied only to cotton tendered on future contracts, should go far to reduce the friction which has been an almost constant feature of classification up to this time. An especial advantage of such standards, aside from their tendency to reduce controversies over grading, is that they would tend to harmonize quotations of the various grades in different markets. It was suggested in Part I of this report that the New York Cotton Exchange use the differences of several southern markets as a basis for determining its contract differences. One objection advanced against this plan is based on the admitted discrepancies between the standards of different markets, which discrepancies, of course, tend to affect the quotations, although this difficulty can be largely overcome. The adoption of uniform standards, by tending to promote uniformity in the basis of quotation, should go far to eliminate this objection.

Years ago an attempt was made to secure the establishment of uniform standards by joint action on the part of the leading cotton exchanges, but the movement fell flat, and similar efforts made from time to time by the New York Cotton Exchange have failed to meet with much response from southern markets or from Liverpool. There is no good reason, however, why such efforts should be abandoned. Instead, an earnest attempt should be made at once to secure the establishment of uniform standards. A provision for the establishment of such standards by experts to be selected by the Secretary of Agriculture was included in the agricultural appropriation bill for the fiscal year 1908-9. It is not proposed to make the introduction of these standards compulsory.

NEED OF PROVISION FOR REJECTION OF WEAK-STAPLE COTTON.

Another important suggestion is that specific provisions be adopted by both the New York and New Orleans exchanges for the rejection of cotton of extremely weak staple. One of the principal complaints against the New York classification is that cotton of extremely weak staple, or so-called "perished" staple, has been admitted to the cer

tificated stock, principally in the low-grade crop year 1906-7. There can be no doubt that this charge is true. Members of the classification committee itself admitted this, but asserted that the total amount was small. In defense of their action members of the committec pointed out that the rules of the New York Cotton Exchange make no provision for the rejection of such cotton, and that members of the committee are not required to test the soundness or strength of cotton, but simply to grade it in accordance with the standards of the exchange with respect to color and the amount of dirt and other foreign matter. While there is no specific rule on this point, however, it is clearly improper for the classification committee to admit to the certificated stock cotton of distinctly perished staple and consequently of an unmerchantable character.

The rules of the New Orleans Cotton Exchange likewise contain no specific provision for rejecting extremely weak or so-called perished staple cotton. The New Orleans contract, however, as just stated, stipulates that no cotton shall be deliverable which has a less market value than good ordinary of fair color. Extremely weak or perished staple cotton would, as a rule, be excluded by this provision. Furthermore, since in New Orleans the receiver as well as the deliverer is represented at the time the samples are drawn, and since the receiver has the right to object to or "protest " any samples which he considers below the contract limit, the absence of a specific provision from the rules of the New Orleans Cotton Exchange for the rejection of cotton of extremely weak staple is much less important than in the case of New York, where the receiver of cotton has absolutely no voice in the original classification. A certificate system under which the inspection bureau officially undertakes to certify to the grade of cotton involves responsibilities which do not obtain where the grading is left to arbitration. These facts, and the further fact that complaints against the New Orleans classification, instead of charging undue laxity, are generally to the effect that classification in that market has been unduly severe, make the absence of specific provisions for the rejection of extremely weak staple cotton in New Orleans a matter of secondary importance.

Nevertheless, it is desirable that both exchanges specifically provide for the rejection of cotton of distinctly weak staple. Similarly, it is desirable that both exchanges define more specifically in other respects the characteristics of cotton which shall be tenderable on contract. At the present time too much latitude is left to classification committees and arbitrators.

USE OF WORKING TYPES.

Another suggestion relative to classification in both the New York and New Orleans markets is that those who perform the actual

work of classification should be compelled to keep constantly before them the standard types of the respective exchanges. At the present time this is not invariably done in either exchange. The standard types in both markets are kept in the room where the work of classification or arbitration is performed, but actual reference to such standards is left to the discretion of the classers. It is alleged that failure to refer regularly to these standard types has been responsible for many errors in classification in both markets. Some classers, it is true, have contended that constant or even frequent reference to the standard types was not necessary, because of the expertness of the classers. It was argued that reference to such standards was no more necessary than reference to the alphabet after one has learned to read. In view, however, of the very frequent discrepancies in classification, and the admitted differences of opinion even among experts, it would appear that more frequent or even constant reference to the standard types of the respective exchanges is eminently desirable. It is difficult to see how a rule compelling constant reference to such types could possibly be a disadvantage, while it could hardly fail to result, in the main, in more accurate classification.

It also seems desirable that the New York Cotton Exchange adopt working types for the half grades in white cotton and not merely for the full grades, as at present. The New Orleans exchange maintains types for such half grades in white cotton. On the other hand, the spot-quotation committee in New Orleans does not quote prices for these half grades, but the delivery value of such half grades is fixed halfway between the quoted differences for adjacent full grades. The quotation of such half grades by the spot-quotation committee of the New Orleans Cotton Exchange would be an improvement over the present method.

METHODS OF APPEAL AND RECLASSIFICATION AT NEW YORK.

It has also been urged that instead of submitting appeals from classifications in the New York market to the entire classification committee, which includes the members who originally classed the cotton, such appeals, and reclassifications also, should lie entirely with an independent committee. The present practice has been very generally condemned. On the other hand, in New Orleans, where appeals are taken to an independent set of arbitrators, reclassifications often show such wide divergence from the original awards as to occasion doubt as to whether they were any nearer the mark. This is partly due, no doubt, to the fact that in New Orleans appeals are taken to a very small body of arbitrators, whereas the chief advantage in appeal in the case of cotton appears to lie in securing the judgment of a larger number of persons, thereby eliminating as far as possible the personal

equation of the individual. On the whole, it is a question whether an appeal to an independent body would be an improvement over the New York system, particularly since there is reason to believe that efforts to improve the work of the classification committee at New York, as a result of recent complaints, will go far to insure greater accuracy. It is doubtful whether anything would be gained by excluding those members of the committee who originally passed on the cotton from participation in reclassification. It might, however, be desirable, while permitting those members to be present, to prohibit them from voting.

PROPOSED RESORT TO ARBITRATION FOR TINGED AND STAINED COTTON.

The establishment of official standards for tinged and stained cottons is a subject of much controversy. Most leading southern markets do not attempt to establish standards for such cottons or to quote such irregular grades at specific prices. The establishment of arbitrary standards for such cottons and the fixing of differences for them on contract deliveries are regarded by some as among the most objectionable practices of the New York Cotton Exchange, and it is urged that the grade of and the differences for such cotton should invariably be determined by arbitration. There are some practical difficulties in combining a system of arbitration with the certificate system, and if these can not be overcome, the simplest solution appears to be by the absolute exclusion of a still larger number of such tinged and stained grades from the privilege of contract delivery.

IDENTIFICATION OF INDIVIDUAL BALES AT NEW YORK.

Another suggested change of great importance is that every bale of cotton in the New York stock shall be identified on the grade certificates, so that the receiver of a given lot of cotton can instantly know which particular bales are of each grade. The absence of such practice at New York has, in the opinion of some, been designed to hamper the purchaser of contracts in taking up cotton; certainly it has had that effect. The failure to identify individual bales unquestionably works great hardship on receivers of cotton, since it means that an entire lot of cotton may have to be resampled in order to locate a few bales desired at any particular time. It has been argued that the cost of storage and other warehousing expenses are so great in New York that such identification of bales is impracticable. This argument does not appear to be well supported.

It has also been suggested that cotton be classed at New York in even-running lots at the dock, so as to allow a range of but one full grade on any one certificate. This may not be feasible. The mixture

of grades on a single certificate in New York is undoubtedly very objectionable; but it is to some extent unavoidable, owing to the relatively unskilled class of labor necessarily employed in inspecting cotton at the docks, and also to the irregular delivery of cotton at New York by transportation companies. It is, however, at least practicable to identify individual bales, which would go far toward accomplishing the object desired.

EXTENSION OF NEW YORK CERTIFICATE SYSTEM TO SOUTHERN MARKETS.

To meet complaints against the character of the New York stock some members of the New York Cotton Exchange have for years urged the extension of the New York warehousing and certificate system to southern markets. Under this plan cotton would be stored in licensed warehouses in the South. Such warehouses would be under the control of the New York Cotton Exchange and the grade of cotton stored in them would be established by the inspection bureau at New York from samples sent there. Such cotton when certificated would be tenderable on New York contracts without actually being shipped to New York, the receiver being allowed to deduct from the contract price the shipping expenses from the point of actual delivery to New York, as well as a moderate penalty. It is urged in support of this plan that it would not only materially enlarge the supply of cotton deliverable upon New York contracts, but would make the stock much more representative of the entire crop instead of being confined, as at present, largely to surplus grades. The chief objections to this system are that it would increase the advantages of the seller of contracts in New York, which are already very great, and that it is particularly unjust to the buyer in that he could not know in advance. where he would receive his cotton. These and other minor arguments are discussed in the text of the report. In any event, such an extension of the system should not be countenanced unless the New York Cotton Exchange readopts the "commercial-difference" system. Otherwise, the extension of the system would involve a corresponding extension of the evils of fixed differences, exhaustively discussed in Part I of this report.

COMPLAINTS REGARDING RANGE OF GRADES DELIVERABLE ON CONTRACT.

Another feature of future contracts in cotton which has been a source of great complaint is the privilege allowed the seller of delivering a wide range of grades, or any grade within that range, on a single contract. Complaints on this score fall into two classes. In the first place, many spinners, and a few cotton merchants, object to the delivery of more than a single grade, or in any event more

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