Part II.-CLASSIFICATION OF COTTON.

CHAPTER I.

COMPLAINTS AGAINST CHARACTER OF NEW YORK STOCK AND OF OVERCLASSIFICATION.

Section 1. Difficulties attending classification of cotton.

The methods of classing and grading cotton employed in the leading markets of the country were briefly described in Part I of this report. It will be recalled that in New Orleans the classification of cotton is mainly conducted by arbitrators drawn by lot, who also establish the grade "differences" for the cotton which they examine. Both the deliverer and the receiver are represented at the time the samples are drawn from the bales, and the receiver has the right to object to or "protest" any samples which he considers below the contract limit. In New York, on the other hand, the classification of contract cotton is entirely under the official control of the New York Cotton Exchange through its inspection bureau, which samples the cotton, establishes its grade, and issues a certificate of grade, holding good for one year, or until the cotton is shipped from the port of New York, subject to a demand for reclassification on the part of any purchaser of such cotton. The actual work of grading is performed by a classification committee consisting of five salaried employees of the exchange. Neither deliverer nor receiver has anything to do with the work of grading, and the buyer is not allowed to be present at any stage of the work. The deliverer, however, may be represented at the time the samples are originally drawn.

It has been shown that the classification of cotton has been a source of great dissatisfaction in the cotton trade. To a considerable extent this is inevitable. The absence of any mechanical means of grading cotton renders classification dependent in the main upon the personal judgment of the individual classers, who, of course, differ widely in skill and experience. Again, conditions of light and weather, which appear trivial in themselves, may influence a classer materially. It is no uncommon occurrence for the same classer, examining the same lot of cotton at different times and under slightly different conditions, to render different awards.

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In the case of complaints of spinners, it should also be borne in mind that the classification of cotton for contract delivery is determined chiefly by its superficial appearance—that is, its color and the amount of trash and dirt mixed with the fiber-rather than by the length, strength, and general character of the staple. These latter characteristics, however, are exceedingly important in determining the spinning value of cotton as distinct from grade only. To a large extent, however, such characteristics, as well as some others, are necessarily disregarded in the classification of cotton for contract deliveries.

Another important circumstance which has contributed to difficulties over classification is the absence of uniform standards in the various markets. An attempt was made in the eighties to secure the adoption of uniform standards through the organization of the National Cotton Exchange Association. Standards were agreed upon, but nearly all spot markets failed to adopt them in actual business, and up to the present time there has been a decided lack of uniformity in the classifications of different markets."

Aside from local variations in standards, the difficulty of classification is aggravated because of the fact that a great portion of the spot cotton handled in the South, either for export or for domestic mills, is sold, not by grade, but by mark, such as "CCC," "XXX,” "PEN," "HOL," etc. A single merchant may have from 50 to 200 or more such marks, each representing a particular style of cotton. In the case of some of the large shippers certain marks have become so well known as to be recognized more or less as standards for particular localities.

In view of the absence of a uniform basis of classification and the existing variety of local standards, it is easy to understand how acute disagreement should arise over the grading of cotton. This is particularly true in the case of shipments from one market to another for delivery on contract. Such complaint has been very widespread. The classification of the New York market has been condemned as altogether too lax, that of the New Orleans market as too rigid, while in the case of the Liverpool and Bremen cotton exchanges it is charged that the classification has been exceptionally severe and altogether in favor of the buyer of cotton as against the American shipper. The merits of some of these complaints are taken up in the following pages. It should be kept in mind in considering them that the classification of cotton is not an exact science and that some divergence of opinion is absolutely inevitable.

On the other hand, despite pronounced differences in numerous characteristics, a large part of the cotton crop is capable of classifi

a For a discussion of the practicability of uniform standards see Chapter IV.

cation into fairly homogeneous groups; indeed, if this were not so, organized future trading in cotton would become almost impossible. If every bale of cotton included a variety of styles of the staple, and if very few bales were substantially alike, contracts would lack the similarity essential to broad future trading in the product. It should be understood, therefore, that while the difficulties of classification are serious a large portion of the crop can be graded without much trouble. The chief difficulties in classification, as shown later in this report, occur in the case of the lowest grades of the crop, or in the so-called irregular grades, such as storm-damaged and discolored cotton. In the case of the regular grades of white cotton. difficulties of classification are much less serious.

Section 2. Alleged unmerchantable character of bulk of New York stock.

The classification of the New York Cotton Exchange has been subjected to very severe criticism for a long time. The charge has been made repeatedly that the New York market has become a dumping ground for low-grade cotton, and that no inconsiderable portion of the New York stock of cotton is really unmerchantable and unspinnable in the ordinary sense of these terms. It is also alleged that, as a result of the common practice in New York of sorting out from cotton received on contract those grades which were most adapted for immediate sale and of retendering the less desirable grades, there has been an accumulation of extremely low grade, nondescript cotton which has no real commercial rating whatever, and the principal use of which, according to such charges, has been for the purpose of retendering again and again with a distinctly depressing influence upon the price of New York contracts and of spot cotton in the South.

Many of these complaints are really complaints against the contract itself, which until recently has permitted the delivery of very low grades, and against the "fixed-difference" system of the New York Cotton Exchange, which frequently tends to attract a disproportionate quantity of low grades, rather than against the grading itself. At the same time, the further charge is made that the New York stock as a whole has been seriously overclassed.

Criticisms against the character of the New York stock, which have been repeated in one form or another for a long time, were crystallized in a formal complaint brought by Congressman L. F. Livingston, of Georgia, and Harvie Jordan, president of the Southern Cotton Association, of Atlanta, Ga., to the Postmaster-General, under date of January 2, 1907. The substance of these charges, in so far as they relate to the quality of cotton in the New York stock, is con

tained in the first and seventh sections of the complaint, the principal features of which follow:

First. We charge that New York City has ceased to be a commercial spot-cotton market, and that the New York Cotton Exchange, operating under its present debased and fraudulent contracts, has developed into a purely speculative or gambling exchange, and that the grades of cotton shipped to New York and tenderable on the contracts under the rules of the New York Cotton Exchange can not be used for commercial spinning purposes, and that such grades of cotton are used solely to depress the price of spinnable grades in the South, to further the speculative features of the New York Cotton Exchange, to the heavy detriment of the entire legitimate cotton trade of the United States.

Seventh. We further charge that out of the advertised stock of cotton at present stored in the warehouses of New York City— amounting to 114,000 bales-fully 70,000 bales of said cotton is of such inferior grades as to render the staple unfit for spinning or manufacturing purposes, and that a considerable portion of said cotton has been held in said warehouses for years, and is totally unfit for any purpose whatever, except to be tendered on the fraudulent contracts of the New York Cotton Exchange, to the serious detriment and injury of the legitimate cotton trade of the United States.

A similar charge was made to the revision committee of the New York Cotton Exchange at its meeting on November 21, 1906, by C. H. Carr, of Fall River, Mass., who stated that there were in New York at that time about 70,000 bales of cotton that no spinner would take and attempt to put in a mill.

SOME EXTREME CHARGES OF THIS CHARACTER EXAGGERATED.-It developed on investigation that such extreme criticisms of the character of the New York stock of cotton were not well supported. Mr. Jordan, when questioned as to the basis of his charge that a large part of the cotton in the New York stock was unspinnable, admitted that he had no specific or documentary evidence to support this charge, but that it was based "only on hearsay." He stated that he had never seen a bale of cotton in New York. He said, however, that he had been advised by reliable concerns that much of the cotton in the New York stock was of inferior quality.

Mr. Carr, in a letter to the Bureau under date of November 9, 1907, said:

Replying to your letter of the 7th, I would state that I appeared before the revision committee of the New York Cotton Exchange on November 21, [1906], and did make the statement regarding the contracts in New York. At that time there was a feeling among the members of the exchange who were practical cotton men that too low cotton was allowed to go on contract. Some of us were a little provoked over the situation, but, as we

were talking among the members of the exchange-you might say our own family-we did not consider that it interested the outside public. Since I made that statement about 60,000 bales of the cotton referred to has been sold to spinners; so I find that a great many people were willing to use the cotton which I could not use. Since the matter was brought up a great many grades of cotton have been eliminated from the exchange, and the chairman of the classification committee has been changed. I believe the contract to-day to be decidedly honest and the best one in existence. I have never received a bale of cotton on the exchange, but, as I am a spot broker entirely, I prefer to handle better cotton than a great deal that was in stock last year. There would have been no talk whatever about the contracts on the cotton exchange but for the storms of September and October, 1906, for these storms lowered the grade of cotton, discolored it, and as there is no rule against receiving it on the exchange it could be delivered there.

From this statement it will be seen that Mr. Carr's charge was not based upon personal experience in the handling of cotton received on New York contracts, and, furthermore, that, while the cotton was unsuited to his purposes, considerable of it was later shipped out to spinners.

It seems probable that some extreme complaints against the character of the New York stock have been due to the failure of those making them to bear in mind that cotton which was not suited to their individual needs might nevertheless be desirable for the uses of other purchasers and properly tenderable on contract. It would appear that some spinners who have desired a certain grade of cotton on contract and who have not received that specific grade have condemned the stock at New York generally, whereas, in some cases, their complaints should have been directed against the form of contract itself which permits the delivery of a wide assortment of grades, including low grades. At the same time many criticisms of the New York stock and of New York methods of classification have been justified.

Statements that many thousands of bales of unspinnable cotton have been held in the New York certificated stock for years are substantially disproved by the record of stocks itself. Thus, on October 11, 1900, the total certificated stock in New York was only 5,029 bales, and the total warehouse stock, including cotton not certificated at that time, was but 7,274 bales. A considerable portion of this cotton appears to have been of high grade. The total stock in New York increased sharply after October, 1900, and has fluctuated since according to the season. Until recently the New York Cotton Exchange did not keep a record of the stock by grades on specific dates. The statement on page 38, however, shows the total warehouse stock carried over in the New York market at the close of the crop years 1900 to 1907.