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Textiles:
Textile Fibers
Historical Sketch Of The Textiles
Mechanical Devices For Preparation Of Textiles
Cotton Production
Cotton Marketing
Cotton Manufacturing
Geography Of The Cotton Trade
Prices Of Cotton Goods
Linen
Classes Of Wool
Production Of Wool
Wool Marketing
Manufacture Of Wool
Geography Of Wool Production
Mohair, Its Nature And Uses
Raw Silk Porduction
Silk Manufacturing
Silk Waste
Imitations Of Silk
Construction, Color, And Finish Of Cloth
Dyeing And Printing
Cloth Finishing
Care Of Textiles
Textile Tests

Cotton Marketing

( Originally Published Early 1900's )



The first exchange.-After the cotton has been baled, it is ready for the market. The cotton farmer of the South may sell to some local storekeeper who makes a business of buying cotton, to some local cotton buyer or factory, to some cotton dealer located in a large cotton concentration point, to traveling buyers sent out by cotton merchants or manufacturers from the large cities, or he may perhaps sell direct to the cotton spinning mill if it is conveniently near so that he can make arrangements for transportation. In any case the farmer hauls the cotton bales to town and whoever buys the cotton grades it by examination of the bales and fixes the conditions of the first exchange.

The cotton farmer and his storekeeper.-The Southern cotton farmer has been in the past and is yet, to a very large extent, in a peculiar position. The majority of both the white and colored farmers are very poor and hardly ever have enough money ahead to supply all their needs during the months before the cotton is ready for market. Hence the cotton farmer often needs a considerable amount of credit extended to him by someone. These necessary advances are usually made by some local storekeeper who agrees to grant the credit on condition that the cotton be turned over to him in the fall. The advances consist largely of groceries and clothing for the cotton farmer's family, a few tools, and enough cash to pay the pickers and ginners. During the summer this debt to the storekeeper rolls up.

When the cotton is finally hauled in, the merchant takes it, grades it, and pays for it; any difference that may then exist between the value of the cotton at the storekeeper's price and the cotton farmer's debt is squared by a cash payment to the farmer. When the cotton crop does not equal in value the amount of the debt, the farmer simply ties himself up to the storekeeper for another year, hoping to get a crop the next season which will more than make up for the current loss. In this way it sometimes happens that cotton farmers are virtually tied to a storekeeper for years at a time. Many evils characterize this system. The storekeeper frequently loses part of the amount due him, while the cotton farmers sometimes feel that they are both overcharged for the goods they purchase and underpaid for the cotton they bring in.

At many points the system just described is breaking down. Recent advances in agriculture and interest in better methods of marketing have caused many of the southern cotton farmers to free themselves from the local store keepers by supplying their own funds through savings. In many cases when loans are necessary, they are made by cotton merchants or factors; occasionally by cooperative associations of the farmers themselves.

Tenancy.-Many cotton farmers in the South do not own their farms, and must rent from some large landholder. The plantations before the Civil War often contained hundreds of acres cultivated by slaves. Since the war these plantations have in many cases remained under the same ownership, while the management has been left to tenants who take a few acres each. Some of these tenants raise cotton on shares, while others pay so much an acre far the annual use of the land. Often the plantation owner extends credit to stake the cotton farmer during the growing season, thus making the tenant responsible to him rather than to the local storekeeper or other person. At the end of the season the cotton is turned over to the owner of the plantation; he pays the farmer any surplus over the charges for rent and expenses.

The tenant system of the South has not proved successful in developing a better type of agriculture. Where the tenant system is strongest, the methods of cultivation are 1V simple and knowledge of scientific agriculture as meager as before the Civil War. Recently, however, things have been improving in many regions. The larger plantations have begun to be divided, enabling the tenant to buy his own farm. With ownership has come a desire to get better results and a consequent greater interest in the newer ideas of scientific cotton farming. As a result, the future of cotton farming in the South looks promising for the small farmer.

COTTON GRADING

Whether the farmer sells to a storekeeper or to some other cotton buyer, the sale is not simply a transfer of so much cotton at so much a pound. Before the buyer invests he must know what quality of cotton he is getting; hence the cotton must be graded.

Grading cotton is of the utmost importance in both marketing and manufacturing. The buyer's usual method is to cut a slit through the bale wrappings and pull out a handful of the lint, upon which judgment will be passed. Sometimes samples of the lint are taken from two sides of the bale. These samples are carefully examined by sight, touch, and smell. The length and consistency of fiber are noted; the coarseness or fineness of the fiber is considered, and also its breaking strength. Since the cotton is bought and sold by the pound, it is necessary to determine if it contains substances which unduly increase the weight, such as dirt, leaves, or undue moisture. Some moisture is always found in cotton fibers, but the amount should not average more than two or three per cent. of the total weight. If there is more moisture than this, the cotton sells for less. Both dead and unripe fibers are objectionable and lower the grade. Fibers damaged by frost or by insects are also of poor value. Finally the buyer considers the color and luster of the fiber. Upon the basis of all of these considerations, the grade of the cotton is determined. The bales are weighed; a certain percentage of the total weight, usually four per cent., is taken off for coverings and dirt; then the farmer is paid for the net amount of cotton. The usual test for moisture is simply by feeling. Any mildew is detected by its odor.

Chance in grading.-Cotton grading is more or less imperfect, and there is considerable play of chance in grading a bale. One bale of cotton contains the fiber from say two and one-half acres of land. Almost certainly there are great variations in the cotton, due to differences in the land. If the sample comes out of the best cotton, the bale brings a higher price than if the sample happens to be of the poorer cotton therein. A good many mistakes are possible in grading cotton. Any two graders, even if expert, seldom grade cotton alike, and it is by no means certain that the same grader could twice grade the same cotton in exactly the same way. The difficulty is often complicated by incompetence and sometimes by dishonesty.

The standard grades.-After the length and the strength have been established, the degrees of color, luster, and cleanliness give rise to thirteen distinct grades generally recognized in all cotton markets in this country. These from highest to lowest are as follows:

1. Fair

2. Strict middling fair

3. Middling fair

4. Strict good middling

5. Good middling

6. Strict middling

7. Middling

8. Strict low middling

9. Low middling

10. Strict good ordinary

11. Good ordinary

12. Strict ordinary

13. Ordinary

Of the grades in the above list, those designated as "strict" are commonly spoken of in the trade as "half-grades." Some cotton markets, notably New York, formerly recognized quarter grades also. These were found impracticable after several years of trial. On January i, igo8, the New York Cotton Exchange adopted the gradings named above.

Any discoloration in the cotton is noted in the grade by using the words "tinged" and "stained"; for instance, "strict good middling tinged," "good ordinary tinged," or "low middling stained." Tinged cotton is only moderately discolored; stained cotton may range anywhere from a light yellow to a deep red or, as it is called in the trade, "foxy" color.

The basis grade in all markets is "middling" white cotton. This grade is the universal standard by which the quality of all other grades is measured. It is a fleecy cotton, very nearly white in color, and containing only a small amount of foreign matter. "Fair" cotton, the highest grade recognized, is a very bright, white, clean cotton. The other grades down to "ordinary" contain an increasing amount of foreign matter, and the lowest grades usually are somewhat dingy. Below "low ordinary" are some miscellaneous classes of cotton for which there are no recognized grades and which are of poor value.

Every cotton crop is more or less distinctive in character. Thus, one crop may be very bright and white, another may be of a creamy character, another dingy. On this account one often meets thn expression that cotton is of "good color," meaning that while it may not be strictly white it is not discolored by being tinged, spotted, or stained.

Method of grading in cotton-exchange towns.-Grading is a simple, crude process in the little local markets where the farmers sell. The buyer does hardly more, as has been stated, than pull out a sample from each bale, examine it, examine the bale itself whenever the lint shows through its wrappings to see that the cotton runs about the same, estimate the grade, and then offer his price. Frequently the buyer may be wrong in his grading by as much as two or three grades according to the standard of the expert grader of the big markets. In the big markets grading is done by one who makes this his sole business. He usually works under the authority of the city or the cotton exchange. The method followed is somewhat as follows: Samples are taken from the bales, and wrapped in paper with a blue lining because the blue gives cotton a good appearance. They are then taken to a testing room, opened, and allowed to stand for twenty-four hours. After this time the fibers are dried thoroughly-an important matter, for drying not only makes the cotton look better, but also displays more clearly any sand and dirt that may be mixed with it, for sand or dirt naturally falls into the paper when the lint is thoroughly dry. For the first reason, the sellers are glad to have the cotton dried; for the second reason, the buyers demand thorough drying. Next, in a good north light the samples are examined and graded, as many as three or four thousand in a forenoon by a single person. Proper notations are entered on each sample, which is then taken back to the bale from which it came. These notations of grade are marked on the bale, whereupon the cotton is ready for the buyers.

Value of the different grades.-The comparative value of the various grades varies with the supply and with the demand for specific grades by cotton manufacturers. To llustrate the price variations, it may be stated that "low ordinary" cotton ranges from four to six cents less than "middling"; the other grades run accordingly.

English grades.-The greatest cotton market in the world is the Liverpool market in England. The same grades are employed there as in New York for American cottons, but it is said that the grading is done less closely than in this country. Liverpool receives large supplies of cotton from India. This is all classed in four grades: "fair," "good fair," "good," and "fine." Egyptian cotton is graded as "fair," "good," and "fair and good." Brazilian cotton has three grades: "middling fair," "fair," and "good fair."

MIDDLEMEN'S EXCHANGES OF COTTON

The local merchant or dealer who buys the cotton from the farmer ships it to the larger cotton markets and sells either to cotton spinning mills or to regular cotton merchants. The cotton cannot always be sent at once to the cotton mills; hence merchants generally have large storage houses where the cotton is collected and held until it can be shipped. They may sell either directly to the mills or to other cotton dealers or brokers. A large part of the American cotton is shipped abroad; hence the cotton merchants sometimes act themselves as exporters or else sell the cotton to regular exporters or to foreign buyers. Sometimes the merchants ship to Europe on the order of Continental cotton-buying houses or spinning mills; in other cases the foreign houses send buyers to this country who buy from the merchants or even directly from the local dealers and larger planters if they have a chance to see for themselves and judge the quality of the cotton.

The cotton exchange,-To facilitate the buying and selling of cotton, regular market places are established in most of the large southern cities, and in certain other cities supplying the manufacturers. Buyers and sellers of cotton come together in these places, make their various offers and bids, and complete their transactions. This place of meeting, often a building especially fitted for cotton trading, is known as a cotton exchange. The work of the exchange is carefully governed by a set of rules laid down by an association of the dealers meeting there. These rules cover everything from how the business is to be conducted to how the cotton is to be graded. All the cotton merchants, many local dealers, all the exporters and cotton brokers, and even many cotton spinners belong to some cottonexchange association, or sometimes to several. The membership gives one the right to come in and do his trading in the cotton-exchange building under the rules of the association. Spinners usually obtain their cotton through these exchanges, although a certain amount is purchased directly from planters or local dealers by the southern mills in the cotton belt.

Spot sales and future sales.-In the cotton exchanges two sorts of sales are made; the first is known as a "spot" sale, calling for delivery of the cotton at once, and the other as a "future," in which the cotton is to be delivered at some future time. Spot sales are familiar to all in every trade. Selling or buying for future delivery suggests that there is an element of speculation in cotton trading that needs to be explained.

Market price variations.-Anyone who will follow the market reports of cotton prices will presently note that the prices at which cotton is bought and sold vary considerably from time to time. In fact, cotton prices vary from day to day, even from hour to hour. This variation in price is due to many things: the variations in demand for cotton goods among the consumers of the world, the financial prosperity of the people, the conditions of crops, and the available supply of cotton. If the demand for cotton is strong and the supply small, the prices will go up; if the demand is weak and the supply ample, then prices will go down. During a year of hard times people buy less clothing than during prosperous times; hence we say that the demand falls off. If at the same time there happens to be a good cotton crop, farmers and cotton merchants will not be able to get so much for their product as when times are good. When the cotton crop is poor, the supply is diminished and the price rises, because people must pay more when there is not enough of the products demanded.

The markets show tendencies of supply and demand long before the people know anything about what is going on. For example, if cotton manufacturers and merchants should learn from the government reports or otherwise that the cotton boll weevil was destroying an unusually large amount of young cotton bolls in July, they would judge that the supply of cotton would be by that much diminished in November, and that the price would therefore go up at that time. Being good business men, they would not wait until November, but would immediately begin buying up the cheaper last year's cotton. This stimulated demand in July would at once result in an increased price; but November's price would be still higher.

Every hour of the day brings to the markets news from all over the world about cotton crops, cotton supply, and cotton demands. The effect of this news is shown at once in the price. An unimportant bit of news may change the price no more than a quarter of a cent a pound; tidings of war in India would make the price jump several cents.

Cotton speculation.-Everybody knows that prices will change. The difficulty lies in telling whether they will go up or down. Chance largely decides the matter. Keen foresight and experience give some men rather unusual powers in predicting probable market variations. Unfortunately, plenty of people who lack these are ready to believe that they have the necessary knowledge and good fortune to buy cotton when it is low in price and hold it for a higher price. Cotton speculation thus comes into existence. If cotton goes up, the speculators who have bought win; if it goes down, they lose. Even the best of the cotton brokers make mistakes, but what they lose on some transactions they hope to make up on others.

Dealing in futures.-Cotton speculation often takes another form which is called "dealing in futures." A spinner sometimes fears that the price of raw cotton may go up, but he must go ahead and take orders from weavers for great amounts of yarn to be delivered at some future time in order to keep his plant busy. What price shall he put an this yarn? Can he make it low enough to insure his getting the order, and yet leave him a fair profit? If he figures the price of the yarn on the basis of the current cost for raw cotton, he will be protected, provided raw cotton does not increase in value. If it goes down he will make a larger profit; if it goes up, he will lose. What can he do to insure himself against loss? Most spinners who do not care to incur any risk of rising prices of raw cotton buy at current prices from a broker or merchant on the exchange the amount of cotton that they will need to fill their orders, stipulating that this amount be delivered at some stated future time, the time when they will need the cotton at the factory. The risk of loss because of rising prices is thus transferred from the spinner to the cotton broker. The spinner can now go ahead with a feeling of security, for he knows that whenever he wants it he will have his cotton from the broker at the specified price. Of course, if cotton prices should fall, not he but the broker would profit thereby. But most manufacturers feel that it is the best policy to keep out of speculating on cotton prices as much as possible, and to depend upon manufacturing profits rather than upon market profits of raw cotton. It should be noted that the broker who sells the cotton to the spinner may not have any cotton on hand when the contract is made. The cotton may not even be in existence. It may be still on the plants in the fields hundreds of miles away, not ready to be picked for months. The broker simply agrees to supply the cotton at a given future date and at a certain price, hoping to be able either to find the cotton before that time, or to sell his contract to someone who can furnish the required amount of cotton on time.

Hedging.-Shortly after making the contract the broker may conclude that prices are going to rise and that he will lose on his deal. In this case he does what the spinner did; that is, he goes to the cotton exchange to find someone who will agree for as low a price as possible at the given future date to supply the cotton contracted for. If he finds such a seller, the risk that cotton may go up is thus transferred to this third party. In like manner one contract for cotton for future delivery may pass through a number of hands, each man buying or selling as his judgment and circumstances dictate. Covering a future sale by a future purchase, as carried on by the broker in the way described above, or as done by the spinner who bought from the broker to cover future sales, is known as "hedging." Wherever there is dealing in futures, there will inevitably be a certain amount of such hedging, for it allows the losses due to changing prices to be shifted by the spinners upon the brokers, and by the brokers among themselves, often in such a manner as to cause no great loss to any individual.

Cotton trading.-There is much of this buying and selling in cotton futures. Great quantities of cotton are contracted for in this way, practically all of which have no existence except on paper at the time the contracts are made. Most cotton brokers at the exchanges never see the material that they buy and sell. Numerous contracts for future delivery of cotton are bought and sold back and forth so as to cancel each other before the time of delivery. Contracts in the possession of one man may be used simply as a means of paying a debt to another, and so on indefinitely, just as bank checks are passed from hand to hand, no cash passing until the final settlement.

Criticisms of dealing in futures.-Dealing in futures on the cotton exchanges has been condemned by many people as gambling. It certainly has much of the gambling element in it, and many abuses in the cotton trade have grown out of it On the other hand there appear certain good results. For example, the cotton manufacturer gets rid of the risk from taking chances on the market when he is fixing prices on ordered goods. This permits him to give his whole time to the efficient management of his business. Both manufacturers and the public are by that much the gainers. Again, the dealing in futures has the effect of equalizing price variations, an undoubted benefit to the producer, who can then feel more certain about what he can get for his crop when it is ready for market. Buyers and dealers all along the line can handle the cotton on closer margins because of the smaller chance of price variations; hence the farmers get more for their product. On the whole, if the cotton exchanges are properly regulated, the benefits of cotton speculation outweigh its evils.

During the years 1908 and 1909, the United States Bureau of Corporations made a full investigation of the system of dealing in futures. In its report, published in three large volumes, judgment was given fairly and impartially, and while several recommendations were made for the regulation of dealing in futures, prohibition of such dealing was not advised. It is noteworthy that the principal cotton exchanges of the country, such as those at New York, New Orleans, and other large cities, have voluntarily complied with these recommendations. Cotton trading is now upon a better basis than ever before.

In general, cotton marketing is fairly well organized. There are, no doubt, many things that could be bettered, but when one learns that it costs only about four-fifths of a cent a pound to get the cotton from the farm to the cotton exchanges, an amount covering not only transportation charges and handling but also all profits on the way, one must conclude that there is little waste in the marketing system. The entire expense of marketing cotton, covering all expenses and profits, from the American plantations to the cotton mills of Liverpool, is only about one and onehalf cents a pound.



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