Should net-weight trading and standards for tare be adopted for American cotton?

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Should net-weight trading and standards for tare be adopted for American cotton?
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A-m." CJYI
UNITED STATES DEPARTMENT OF AGRICULTURE
AGRICULTURAL MARKETING SERVICE


SHOULD NET-WEIGHT TRADING AND STANDARDS FOR TARE BE
IQ MT 0 T D FOR AMERICAN COTTON?

S -2 -
U S DEPOSITORY


John W. Wright, Senior Agricultural Economist


Washington, D. C.
September, 1939







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CONTENTS

'-

F o rew o rd ................................................................. ........ I
Introduction ............................................................. ........ 3
Weight basis of trading in cotton ................. 4
Relation of cotton prices to the weight basis
of trading ....................................................... 8
Standardization of tare ............................................... 12
Financial aspects ......................................................... 15
Problems incident to the adoption of net-weight
trading and standards for tare .................... 17
The proposal from the standpoint of various
interested parties.............................................. 19
Relation of net-weight trading and standards
for tare to improvements in cotton
packaging ... ............................................... 21


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During recent years there has been muoh discussion within

the cotton industry of possible ways of changing the prevailing

gross-weight method of *erohandising ootton to a system of market-

nlug on the basis of net weights. Bills have been before Congress
!
for several years to require the sale of cotton in interstate

oomeroe on the basis of net weight. Soae of these measures would

also require the standardization of bagging and ties.

Cotton-marketing specialists of the Agrioultural Marketing

Service (formerly in the Bureau of Agrioultural Boonomios) have

collected muoh intormation as a background for appraising the

merits of suh a change in method of marketing raw cotton. Some

of this information has been published.

This pamphlet has been prepared because of the present

interest in this subject and the nrmber of inquiries received for

information on specific points. It is hoped that the information

as here presented in question-and-answer form will be helpful to

cotton growers and other interested groups in their consideration

of this important ootton-marketing subject.






Chief, Agricultural Marketing Servieoe.


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SHOULD NET-ZIGHTM TRADING AND STANDARDS FOR TARE

BE ADOPTED FOR AMERICAN COTTON?

By John W right, Senior Agricultural Economist



The modern cotton-textile industry of the world was developed
primarily on the basis of American raw cotton. The inherent super-
ior quality of this product Is generally admitted. But the package
in hoih Ameriscan cotton is delivered to spinners has been the sub-
jest of criticism for aoe than a half oentuzy, particularly in
foreign markets. Although manufacturers and processors of most
American products have a reputation for the excellence of the
packages in which their goods are sold, American cotton has been
characterilzed as the moat unsatisfactorily packaged product entering
the channels of world emeroe. This oritioism applies to the so-
ealled *squares bale In ihloh approximately 98 percent of the
Americlan crop usually is packaged.

It has long been reoganised that unsatisfactory packaging of
American cotton is olosoly associated with the gross-weight basis of
trading, with trade rules relating to bale tare, and with existing
methods of sampling. Although it Is generally admitted that there
is need for improvement in marketing and packaging methods, the
diversity of interests of the various elements in the gotten
industry apparently has prevented such improvement being accomplished
by voluntary action.

Beginning with the 70th Congress, First Session, (1927-28),
one or more bills whloh would require the use of bale-covering
materials that conform to definite standards and that transactions
be based on net weights for all cotton for shipment in commerce,
have been introduced at each session of Congress. Public hearings
have been held in connection with a number of these bills at Shloh
Interested parties have presented their view with respect to the
proposed legislation.

Apparently there is a laek of clear understanding of the various
factors involved in these proposed reforms in the marketing and packag-
ing of cotton. With a view to supplying specific information concern-
Lag these factors and to facilitate a consideration of various aspects
of the subject, the principal questions that have been raised from
time to time are here listed and the available information relating
to each is here briefly presented. No claim is made for oompletoness
in the list of questions nor in the information presented.


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For the convenience of the various groups in the cotton
industry, the material of special interest to each group is indi-
cated. Cotton growers will find the following questions of
particular interest from their point of views 1 to 13, 18 to 21,
24, 27 to 29, and 33. Ginners and oompreosmen will be especially
Interested in questions 18 to 24, 29, 33, and 34. Cotton merchants
will be primarily concerned with questions 7 to 9, 16 to 22, 26, and
29 to 33. Items of speolal Interest to cotton manufacturers are
presented in oonneotion with questions 14, 18 to 22, 27 to 30, and
33. Manufacturers and distributors of cotton-bale-covering
materials will be particularly interested In questions 18, 21 and
22, 33 and 35.

WEIGHT BASIS OF TRADING IN COTTON

(1) that Is meant by the proposal for net-weight trading In
cotton?

The proposal for net-weight trading contemplates the use of
the aotual weight of lint cotton in a bale In connection with pur-
ohases and sales of raw cotton; that is, that payment for the
cotton shall be based on the gross weight of the bale minus the
weight of bagging, ties, and patches.

(2) that Is the present weight basis of trading in cotton?

American cotton is now sold In domestic markets on the
gross weight of the bales; that Is, on the actual scale wight of
the bale, tiioh Inoludes the wight of bale-covering materials. An
exception is found in Amerloan-Egyptlan or Pina cotton, uhilch, from
the beginning of that Industry in Arizona, has been sold on net
weight.

Notes 2he gross weight used in the settlement of domestic
transactions in cotton In subject to deductions for over-tare.
(See question 5. page 5.)

(3) What ls the weight basis of trading In other ootton-
producing countries?

According to the information available, cotton from all
ootton-produoing countries other than the United States and adja-
cent areas in Mexloo, Is sold on a net-weight basis.

(4) What is the light basis of trading for other agricultural
products?

Aooording to the available information, all other Amerloan
agricultural products that are sold by wight, are sold on net weight.










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(5) May weight be added to cotton bales In the form of
bagging, ties, and patches without limit under the gross-weidght
system of trading?

No. The weight of bale coverings must not exceed the tare
allowance of the market in whioh the cotton is sold. Otherwise
the seller of the cotton is subject to a claim for over-tare.

(6) What is the meaning of the term taree'?

The term taree' as herein used refers to the combined weight
of the bagging, ties, and patches used in covering a bale of cotton.

(7) Who determines the allowable weight of bale coverings
under the present system?

Allowable weight of bale coverings, under the present
system, is fixed by the trading rules of the various cotton-trade
and cotton-manufacturersu organizations. Purchases and sales of
cotton that take place in the territory covered by each of the six
regional trade groups affiliated in the American Cotton Shippers'
Association, are made subject to the trading rules promulgated by
these organizations. These rules specify the allowable tare on
uncompressed gin bales. Markets that have organized exchanges
have their own rules specifying allowable weights of bale coverings
for cotton involved in transactions taking plaoe in these markets.

The allowable tare on bales delivered to domestic mills is
fiexd by rules Jointly established by cotton manufacturers and
cotton-trade groups,

In the case of cotton sold in foreign markets, the allowable
tare is specified in the trading rules of the various foreign
cotton-trade organizations.

Several of the cotton-producing States have enacted laws
regulating the packaging of raw cotton including bagging and ties
used for covering bales. In others, general authority for regula-
tion is given to an appropriate unit of the State Government that
authorizes specific regulations governing such matters. In
general, these statutes or regulations having to do with cotton-
bale tare prescribe the number and weight of ties and the number
of yards and weight of baggitg that are required or allowed per
bale. Usually the maximum weight of both bagging and ties is
prescribed.

Considerable variation is found in the rules of the organized
exchanges and trade associations relating to tar., as well as in the
laws of the various cotton-producing States that have enacted legis-
lation governing cotton-bale tare.




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(8) 'tWat is the allowable tare on American cotton in various
markets?

The rules of most of the ootton-trade organizations provide
that for unoompressed gin bales, the weight of bagging shall not
exooed 12 pounds and the night of ties, including buckles, shall
not exceed 9 pounds, or a total of 21 pounds for bale taro. Theme
rules also provide that penalties shall be assessed against light-
weight bales to oompensmte for the smnaller proportion of lint cotton
in suoh bales.

Domestic-mill rules provide that the tare shall not exceed
4.4 percent of the invoice weight of unoompressed bales and 4.8
percent of the might of compressed bales. Thus, for a bale wighing
500 pounds gross, the allowable tare is 22 pounds for a gin bale and
24 pounds for a compressed bale. In the case of a ooapressed bale
weighing 500 pounds gross and carrying 12 pounds of bagging and
9 pounds of ties, 3 pounds of patches are permitted. Otherwise the
bale is subject to a claim for over-tare.

Cotton is exported to various foreign markets under the terms
of a variety of oontraots. Fomerly most American cotton as ea-
ported under terms of so-oalled o.i.f. and 6 percent contra t .
Under these contracts exporters pay all costs inluding inmurane
and freight to destination, and the cotton is invoiced at gross
shipping weight minnus 6 percent. However, the actual allowance for
tare is 9 pounds of ties per bale and 3-9/16 percent of the raining
weight for bagging and patches. For a 500-pound gross-weight bale
the allowable tare is 26-1/2 pounds., For anything in excess of the
allowable tare, a deduction is made in the amount of settlement at
the invoice price of the cotton. If the actual wight of bale
covering s i less than the permissible 26-1/2 pounds, the exporter
does not, under these terms, receive a corresponding allowance.
Under suoh oirouamstances, he finds it to his advantage to add
patches up to the full tare allowance.

For example, if an exporter sells on Liverpool e.i.f. and
6 percent terms, 100 bales of cotton weighing 50,000 pounds gross
and the sale price is 10 oents per pound, the amount of the invoice
will be $4,700 (50,000 pounds less 6 percent 47,000 pounds at
10 eents equals $4,700). If the tare on the 100 bales is 900 pounds
for ties (9 pounds per bale), and 1,750 pounds for bagging and
patches (17-1/2 pounds per bale), payment for the cotton would be
made according to the invoice. If, upon arrival of the cotton, it
was found that the actual weight of bale-covering materials us 28
pounds per bale, a deduction for I50 pounds of cotton (1-1/2 pounds
per bale) would be made in the amount of the settlement. On the
other hand, if the 100 bales weighing 50,000 pounds gross, earried
9 pounds each for ties and only 6 pounds for bagging and patches -
a total of 15 pounds per bale for tare the amount received for the









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cotton would be the same as if the bales carried 26-1/2 pounds of
tare; that in, $4,700. In this ease a total of 1,150 pounds more
lint cotton (11-1/2 pounds per bale) would have been delivered.
(To simplify this illustration, mutual weight olauaes and other
variations in these oontraots have been omitted.)

In recent years the trend has been toward the exportation
of American cotton under special sales oontraots providing for
settlement on the actual net weight of the ootton. During the
season 1937-38, aore than 30 percent of all American cotton ex-
ported was sold on actual net weight, The proportions of cotton
exported on actual net weight to various countries during the
same season were approximately as follows. Italy 88 percent;
Japan, 65 peroentl United Kingdom, 2k percent; China, 45 percent,
and France, 15 percent.

(9) Is there any disadvantage, under the gross-weight
system, in using bale-covering materials that nweigh less than the
allowable tare?

YToes. The per-pound oost of bagging, tiem, and patches
usually is substantially lower than the price of cotton. This
being the ease, it pays the individual seller of cotton to use the
heaviest materials permitted in order that he may receive pay for
the maximum allowable weight in selling under the gross-weight
system. If materials weighing less than the allowable tare are
used, the mount received per bale is less, under the gross-weight
system of trading, than it would be if the heaviest materials per-
mitted by trade rules were used. It is thus apparent that the
gross-weight system discourages the use of light-weight bagging,
ties, or patches that otherwise would provide satisfactory protec-
tion for the cotton.

(10) lay not continue with the gross-weight system?

The present gross-weight system is responsible for wasteful
and expensive practices in the packaging and marketing of cotton,
which place a heavy financial burden on the marketing system as well
as indirectly on cotton growers and on consumers of cotton goods.
The adoption of net-weight trading, if properly arranged and safe-
guarded, would simplify the marketing process and would result in
substantial economies in marketing.

Under the present gross-weight system with fixed allowances
for tare, there is an incentive to choose bale-oovering materials
on the basis of cheapness and weight rather than for the protection
afforded the bale contents. This not only results in the use of
materials that fall to withstand the wear and tear of handling and
shipment, but the extra weight beyond that whioh would actually be
required for protection of the cotton, if suitable materials were










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used, adds substantially to transportation and other onot.. Costs
are further increased by the application of patchesa to bring the
bale tare up to the tare allowanoeos of domestic end foreign
markets. These unneOesary costs are in addition to the losses
from damaged ootton that result from unsatisfactory protection to
the bale contents.

At present, because of the differences in tare allowances
between domestic and foreign markets, bale, must be patched differ-
ently for domestic and foreign shipment. Therefore, the entire
process of oonoentrating, storing, end merchandising involves extra
trouble and expense. The adoption of net-weight trading, by removing
the Induoement to increase tare eight, would tend to sliplify the
marketing process as well as to reduce nosts.

Moreover, under the gross-weight system, cotton growers are
handicapped in their desire to use bagging ade of cotton, even when
relative oosats favor their own product. The difference in weight
between cotton and Jute baggings is suoh that the grower is usually
penalized financially if he uses bale-oovering materials that nigh
less than the allowable tare. Other light-weight bale-oovering
materials likewise are excluded so long as gross-weight trading
eontitnue s.

RATION OF COTTON PRICES V THE WEIGHT BASIS OP TRADING

(11) Does the present gross-wight sratem enable farmers to
make a profit on the bagging and ties for thiah they pay winners
in oonneetion with the ginning and wrapping of their cotton?

Although in selling cotton by gross weight farmers receive
the price of cotton for the weight of the bagging and ties used for
wrapping the bales, they do not, in the final analysis, either make
a profit on these materials or receive pay for them. This Is be-
cause the weight of bagging and ties for teioh the farmer is paid is
offset by the lower price received for the cotton under this ayatem
of selling.

te value of a bale of cotton is calculated on the actual
weight of lint and the price per pound is reduced to ompensate for
the bale tare then the cotton is sold on gross weight. Thus the
belief of some farers that in selling gross weight they make a
profit on the bagging and ties to the extent of the ditfferonce be-
tween the price they pay for moh materials and the value of ae
equivalent weight of cotton, is purely an illusion.













(12) Would cotton growers receive less for a bale of cotton
by selling on net weight?

Disregarding the savings and economies that would result
from net-weight trading, the value of a bale of cotton is the same
regardless of whether the basis of sale is net or gross weight.
However, the number of pounds and the price per pound are differ-
ent in each ease. This is well illustrated by the fact that
normally about one-half of the American orop is sold in foreign
markets, here a modified form of net-weight trading has been in
effect for many years.

The American exporter buys his cotton in this country on
gross weights but must sell It abroad on net weights. Hence, in
buying he must consider the weight of bagging and ties in his
price calculations. He does this by adjusting his buying price
downward to make allowance for the weight of bale-covering
materials for which he must pay the grower, but which will be
deducted when he, In turn, sells in the foreign market. If the
exporter selling on net weight, can get 10-1/2 cents per pound for
cotton and the tare is 24 pounds per bale, the equivalent value
would be 10 cents per pound gross weight, thile, If the bale carries
30 pounds of tare, the value would be 9.87 cents per pound. In
other words, cotton merchants now have to buy cotton from farmers
In this country on gross weight at prices that will enable them to
sell the 8me cotton in foreign markets at a profit on the basis
of net weight. Their purchase prices must necessarily be reduced
to take account of the extra weight for which they must pay under
the gross-weight system now prevailing in this country,

Additional evidence that cotton prices are lower under the
gross-weight system than would otherwise be the case is afforded
by a comparison of prices paid for cotton packaged in round bales
with prices paid for cotton packaged in so-called square bales.
The tare on square bales exceeds 4 percent of the gross weight of
the bales uhi-le the tare on round bales is approximately 1 percent
of the gross weight of such bales. Cotton merchants who buy cotton
in both types of bales in the same markets pay 3 percent more per
pound gross weight for cotton in round bales to compensate for the
lighter tare on such bales.

Thus, the grower does not receive a greater return per bale
on the gross-weight basis of selling because, in the final analysis,
price calculations are based on the net weight of the cotton con-
tained in the bales. If net-weight trading were adopted it could
be expected that an adjustment upward would be made In cotton prices
to compensate for the difference between net weight and gross weight.








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(13) What assurance oould cotton growers have that an adjust-
mosnt would be made in cotton prices to compensate for the difference
between the gross and the net weight of bales?

It has been shown that in making their purchases of cotton in
this country American exporters home sales prices are now based on
net weights always make an adjustent for the bale tare for whloh
they have to pay in making purchases in this country but for uhioh
they are not paid ihen the cotton is sold in foreign markets. Their
purchase price is reduced in each inAtanoe to take account of the
extra weight for thioh they must pay under the gross-weight system.
If they oould buy on net weight, they would not need to make this
adjus ment in calculating their purchase price and oould pay growers
proportionately higher prioes per pound but the same amount per bale
as when purchases are based on gross weight.

An assurance that this price adjustment would be made upon the
adoption of net-weight trading is provided by the meohanics of the
cotton-price system. The New York and Liverpool futures markets
respond to the same conditions of world supply and demand. There is
a definite, although not fixed, relationship between prices for the
same delivery month in each of these markets. The Liverpool price
usually to at a substantial premium over the New York prioe. The
parity, or spread, between prices in the two markets reflects the
coost of moving cotton from Anerioan ports and placing it in Liverpool
as well as the difference in weight basis of trading in the two
markets. The Now York price Is based on groos weight; the Liverpool
prioe on net weight. A a consequenoe, the usual spread between
prices in the two markets represents, in addition to the oost of
placing the cotton in Liverpool, about 50 points, then the New York
price is 9 centa, for the difference in the weight basis of trading.

If net-weight trading were adopted in this country, the spread
between prices in the two markets mould be reduced and, in comparison
with Liverpool prices, Noew York prices would be proportionately higher
than at present. It it a well-known fact that under customary trading
conditions, traders watoh for opportunities to profit by differences
in prices between different futures markets that represent either more
or loes than actual cost of moving the cotton from one market to
another* By straddle operations, theme traders tend to keep the
parity or spread at approximately this coost figure. Therefore, it
eould be expected that the Noew York price would be adjusted upward in
relation to the Liverpool prioe, upon the adoption of net-weight
trading in this country.

As it is customary in the cotton trade for a merchant's buying
basis and selling basis for spot cotton to be definitely related to
futures prices, if the adjustment for net weight were ado for
futures, it automatically would be made for spot cotton.










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(14) Would cotton manufacturers be able to buy their raw
cotton cheaper if purchases were based on net wight?

Although domestic manufacturers now pay for their cotton
on the basis of gross weight, they buy in competition with ex-
porters. Sinoe export prices are based on net weight, domestio-
mill prices, in the last analysis, are similarly based. Any
given bale of ootton would be bought by a cotton manufacturer or
an exporter at the same amount per bale whether on a net-weight
or on a gross-weight basis, but the price per pound would be an
entirely different figure in each case.

(15) 1hat would be the equivalent prices for cotton under
the two systems of selling?

This would depend upon the weight of tare on the bales. For
a bale that weighs 500 pounds gross, the equivalent per-bale values
and prices per pound for the gross-weight and net-weight bases with
various weights of tare would be as follows:

Gross Weight Net Price Value Price Value
wight of weight based per bale based per bale,
of tare of on net net on gross gross
bale bale wight weight wight wight

Pounds Pounds Pounds Cents Dollars Cents Dollars

500oo 15 485 10.o00 48.50 9.70 48.50
500 18 482 10.00 48.20 9.64 48.20
5o00 19* 48oi lo.oo 48.05 9.61 48.05
5oo 21 479 0lo.o00 47.90 9.58 47.90
500 22 478 10.oo00 47.80 9.56 47.80
500 24 476 10.o00 47.60 9.52 47.60
500 26J 473* 10.00 47.35 9.47 47.35
500 3P 470 10.o00 47.00 9.40 47.o00

(16) Would the cotton trade benefit or lose by the adoption
of net-weight trading?

Under the present gross-weight system of trading with fixed
allowances for tare, the cotton trade is able to make a profit by
applying patches to the bales in order to bring the weight of bale-
covering materials up to the allowable tare. This profit is possible
because the oost of patching materials usually is less than the value
of an equivalent wight of cotton. The difference between the price
of cotton and the per-pound oost of patches represents a profit to
the owner of the cotton at the tim the patches are applied. Usually,


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the gin bale carries less tare than 1is allowed in domoestlo-mill
markets and in foreign markets. If transactions wore conducted
en the basis of not might, the patching of cotton would be a
direct charge against the cotton morohant and the possibility of
selling such patches at the price of cotton would be eliminated.

However, under the competitive conditions existing In the
cotton trade, profits from patching are perhaps more apparent than
real in that siuh profits are taken into aooount in prices paid
for or received from the cotton. It is doubtful whether in actual
practice, profits in patching really increase the margins obtained
tw marketing agencies. On the other hand, marketing agencies would
realize advantages from simplification of trading practices and
from improvements in packaging practices that would aoorm froem a
properly afeguarded system of net-weight trading.

(17) Would the adoption of net-wight trading affect the
usefulness of the futures market for hedging purposes?

Uth all domestio transeaotion in both the spot and futures
markets adjusted to met rights, hedging operations would not be
affected. Hedging operations in connection with foreign transao-
tions would be facilitated 1W the adoption of net-wsight trading
In that all transactions would then be on the same might basis,
which frequently is not the oase at present. Differences in the
might basis of settlement tend to redmuoe the protection afforded
IV hedging.

STANDWRDIZATIC O TARE

(18) What is meant by the proposal for the standardization of
cotton-bale tare?

The proposal for the *tandardiaatlon of cotton-bale tare con-
templates the adoption of definite standards with respect to strength,
wight, and dimensions of materials used for covering cotton bales,
including bagging, ties, and patches.

(19) Would net-might trading be feasible without standardisa-
tiLo of tare?

Tb ascertain the net might of a bale of cotton, both the
gross wight and the wight of tare must be known. At present,
there is wide variation In wights of tare on cotton bales. te
weight of tare on en individual bale usually changes one or aore
times while the bale is passing through marketing channels. On gin
bales the original sight of tare is determined not so nuoh by the











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grower as by the ginner whose specific action with reference to
the use of bale-covering materials and iare weights is likely to
be somewhat influenced by the competition with whioh he is faced.
Under present methods, even when winners attempt to keep the
weight of bagging uniform, signifloant variations my result from
irregularities in fabric weights and from inexact cutting of
patterns. The addition of patches to the bale at the time of
compressing combined with variations in weight of patches and in
length, number, and weight of ties used on compressed bales,
results in significant differences between the weight of the tare
carried by bales as they are received from the gin and the weight
of tare when the bales finally reach their place of consumption.

Thus, without the standardization of tare the weight of
tare usually is not known and is not readily apparent. To
ascertain the weight involves opening the bale, stripping and
weighing the wrappings, and then reoompressing the bale a process
that is costly and frequently not practicable. Under these circum-
stances, if an attempt were made to trade on the net-weight basis,
it could be expected that every buyer of cotton would deduct
enough tare to insure his own proteotlon against claims of those
to whom, in turn, he might sell. It seems reasonable to suppose
that the burden of these precautions would fall back upon the
grower, who might thus at times have to sustain deductions of weight
In excess of actual tare.

(20) Could the full benefits of net-weight trading be
realized without standardization of tare?

It is not likely that the full advantages of net-weight
trading oould be realized without positive provision for the
standardization of bale-covering materials with respect to weight,
strength, and dimensions. If net-weight trading were adopted, the
incentive to add weight to the bales in the form of bale coverings
would be removed and, without standardization of tare, it oould be
expected that those responsible for covering bales would then use
the cheapest materials available, regardless of weight, and In doing
so It Is not improbable that the notoriously poor condition in whioh
American cotton reaches spinners would be further accentuated.

It seems logical to suppose that, without some provision for
standards for tare that would permit of conveniently and accurately
ascertaining the weight of tare, the result would be similar to the
situation that now exists in the European markets. These markets
are now on a net-weight basis so far as price quotations are con-
cerned. But because of the great variation in the weight of covering
materials on Amerioan bales, it has been necessary for these markets


p




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to establish an arbitrary figure for deducting tare. Naturally,
this deduction approximates the weight of the heaviest bale-
covering materials uled. This in effect, induces the American ax-
porter to add to the weight of tare by applying patches up to the
allowable maximum. The net effect is an eoonoanio loss to the
industry equal to the coat of the unnecessary patches plus the
transportation and other charges on the extra weight. In the
final analysis, this losn must be passed on to the grower, the
price of whose cotton must be reduced accordingly, or to the con-
sumer who thus has to pay proportionately are fbr cotton goods.
Without some provision for standardisation that would make it
possible to ascertain the weight of tare conveniently and aoarately,
it is doubtful whether the full benefits of net-weight trading could be
realized.

(21) Would tIhe standardization of tare limit baggings that
could be used to those made of cotton?

None of the proposals for standasrdisation of tare that have
been put forward to date contemplate the limiting of bale coverings
to those made of any single material. Such a large quantity of
bagging is required to cover the Americoan orop that It Is doubtful
tbether a single material oould be prescribed as standard without
increasing the cost to the growers. In view of the fact that a
number of materials are now being used, it would appear desirable
to establish standards for those materials that can be demonstrated
to be satisfactory from the standpoint of physical suitability and
that can be standardized within a reasonable range of tolerance.
With selling prices calculated on net weight, there would be no
incentive to use, nor disadvantage In using, any particular material
from the standpoint of weight. This would permit the use of those
standardized materials whioh are cheapest at any given time, so that
the covering of the crop could follow the lines of greatest eoonoqy.

Although the use of bagging made of cotton cannot be fully
practicable until cotton is sold on net weight, the adoption of net-
weight trading does not necessarily mean that cotton would be used
exclusively or even used at all. Rather the adoption of net-weight
trading would be required to enable cotton to oompete with other
bagging materials.

(22) Would it be feasible to provide are than one night
standard for the same type of bale-oovering material?

It would not be practicable to have standards for nore than
one weight of each distinctive type of material. Otherwise there
would be confusion in ascertaining bale tare for purposes of net-










j







- 15 -


wight trading. Materials standardized for bagging, patches, or
ties should be different enough to be positively and easily dis-
tinguishable. this would make it possible to know the weight of
the tare on any bale of cotton by identifying the materials used
as bale coverings.

(23) Now is the wight of tare determined for purposes of
net-weight trading In other cotton-producing countries?

With few exceptions the weight of bale tare Is uniform in
other cotton-produoing countries. his permits the determination
of the net weight of the bales without the necessity for stripping
and weighing the bale coverings.

(24) How does the wight of cotton-bale tare in this country
compare with that of other ootton-produoing countries?

The allowable tare on American square bales of cotton varies
from 4.4 to 5-4 percent of the gross weight, depending upon the
bale density and the market In which sold. The tare on bales from
countries that are the principal competitors of the United States
in world cotton markets Is from 2,0 percent to 30 percent of the
gross wight.

Notwithstanding the extra weight of bale-covering materials,
American cotton is generally admitted to be the most unsatisfactorily
packaged cotton received In the world markets. It is thus apparent
that methods of covering cotton bales In the United States involve
considerable waste in the form of extra weight of materials used
and for the transportation charges which this extra weight entails.

FINANCIAL ASPECTS

(25) Would standards for tare increase the eost of wrapping
cotton?

If tare standardization were adopted in connection with net-
weight trading and if standards were provided for each of the suit-
able bale-covering materials so as to make them competitive* the
cost of wrapping cotton should not be any higher than under the
present system. It Is not Improbable that with the handloap to the
use of light-weight materials removed by the adoption of net-might
trading, costs of suitable bale coverings would be somewhat less
than under the present system.







- 16 -


Somewhat less than 10 percent of the American cotton stop
Is covered, at present, with rerolled or reconditioned bagging of
various kinds. This bagging is used principally in the southeastern
States, where It in obtained from nearby cotton mills, placed in
order for re-use, and distributed to ginners in those areas. Am
such bagging is extremely variable in sight and strength, it is
doubtful whether it oould be standardized unless a range of
tolerance so wide as to defeat the purposes of standardization ware
adopted. The elimination of this type of bagging by a standardiza-
tion program that was not aooompanied by net-weight trading would
probably increase the oost of wrapping cotton in those areas where
suoh bagging is now used. But as very little of the cotton grown
in these areas is rooompressed, light-might burlap would probably
be suitable and oould be bought at prices comparable with second-
hand bagging of the heavier materials. With net-weight trading there
would be no disadvantage in using suitable light-weight bagging.

(26) To what extent, if any, is the competitive position of
American cotton in world markets affected by our present tare
praotioes?

The competitive position of American cotton is adversely
affected by our present tare practices because

(a) The unsatisfactory methods of packaging American cotton
result in waste and damage to the cotton with attendant risks to
foreign manufacturers which must be taken into account by them in
the purchase of their raw material.

(b) A number of foreign countries levy import duties or
special taxes on imports of raw cotton on the basis of gross weight.
AS American cotton exported to foreign markets now carries approxi-
mately 6-percent tare whereas most foreign bales carry less than
3 percent, the duty on the additional 3-poroat tare, amounting to
about 15 pounds per bale, places American cotton at a disadvantage
in competition with cotton of other growths.

(o) The psychological effect on foreign buyers of the dilapi-
dated appearance of American bales in comparison with the neater
packages in which cotton of other growths is presented, is a factor
in export sales.

(27) What would be the aggregate financial Lgain from the
adoption of net-weight trading and standards for tare?

An exact measure of the total savings that would accrue from
the adoption of net-weight trading and standards for tare is not
possible. At a hearing conducted by the Comittee on Agriculture











U,








- 17 -


and Forestry of the United States Senate in Why 1939, the annual
economic loss entailed in the present system was variously esti-
mated at figures ranging up to $20,000,000. The items in connection
with vhioh financial gains would accrue from these reforms include
savings in costs of exess materials for bale coverings, in freight
on excess weight of tare, in insurance, in reduced waste and damage
to bale contents, in the elimination of oosts of tare determination
and of assessing end collecting tare claims, in customs duties on
exports by a reduction in tare weights, and in the general simplifi-
cation of trading practices.

(28) To whom would the benefits of net-weight trading accrue?

Although net-weight trading would be of either direct or in-
direct advantage to cotton growers* marketing agencies, cotton manu-
facturers, and consumers of cotton goods, the principal direct
advantages would accrue to cotton growers and consumers of cotton
goods. Under competitive conditions in the marketing of raw cotton
and the manufacturing of cotton goods, any reduction in the cost
of marketing could be expected to be passed on to producers or to
ultimate consumers. The reduction in costs of marketing that would
result from the adoption of net-weight trading would probably be
divided between these two groups.

PROBLEMS INCIDENT TO THE ADOPTION OF NET-WEIGHT TRADING
AND STANDARDS FOR TARE

(29) Under the proposal for the adoption of net-weight
trading and standards for tare, who would be responsible for ascer-
taining and designating the net weight of bales?

Persons who do the weighing of the bales would designate the
net weight in each instance. Such persons would be expected to be
able to recognize the bale-covering materials used, to know the
standard weight in each instance, and to deduct the tare from the
gross weight of tie bales in order to arrive at the net weight for
purposes of settlement.

(30) How would the tare be determined on old stocks of cotton
for purposes of net-weight trading?

It is probable that a substantial proportion of the aacumu-
lated surplus of cotton carried over at the time the requirement for
net-weight trading and the use of standards became effective, would
not be covered with standard tare. For bales covered with non-
standard materials, the weight of tare would have to be mutually
agreed upon between buyers and sellers or, failing in this, the
weight of tare would have to be ascertained by stripping and weighing







- 18 -


the bale coverings as is now done for a substantial part of the
cotton sold in export markets and to donstio mills. The nseessity
for this procedure would be only temporary and would apply only to
stocks of cotton ginned before the effective date of the standards
for tare.

(31) Would the enactment of Federal legislation providing for
net-weight trading and standardization of tare require modlfioation
of trade rules and contracts of the futures exchanges?

At present, contracts for the future delivery of cotton made
subject to the rules of the various futures exchanges provide for
settlements based on gross weights with fixed and definite allowances
for tare. Obviously, the adoption of net-weight trading would
necessitate the modification of these rules and the contracts subject
thereto.

(32) Would there be any difficulty in securing needed adjust-
ments in the tare provisions of foreign contracts?

Although the trading rules of many of the foreign cotton
exchanges do not make definite provision for the use of actual net
weights for transactions in Amerioan cotton, in praotioe a substantial
proportion of our exports are now sold on terms involving settlement
on actual net eights. As has been shown previously, more than 30
percent of the cotton exported during the season 1937-38 was sold In
this wy.

The rules of the cotton-trade organizations of Liverpool,
Manchester, and Milan now make provision for actual net-weight
contracts.

The International Cotton Comittee of the International Federa-
tion of Master Cotton Spinners' and Manufacturers' Associations at
its meting held at Uilan, Italy, in November 1938, adopted a resolu-
tion requesting all cotton exchanges in the world to modify their
rules to permit of trading in American cotton on actual net weights.

In view of the progress that has already been made in changing
to an actual net-weight basis for cotton sold in foreign markets, it
is not anticipated that the complete transition to -this system would
present any serious problems.










- 19 -


THE PROPOSAL FRCO THE STANDPOINT OF
VARIOUS INTERESTED PARTIES

(33) What responsibility would attach to farmers, ginners,
oompressmen, cotton merchants, manufacturers of bale-covering
materials, or distributors of bale-covering materials for the use,
shipment, or sale of nonstandard materials after the effective date
of the standards for tare?

Legislative proposals that have been made to date for the
standardization of cotton-bale tare provide in substance that it
shall be unlawful for any person to ship or deliver for shipment in
commerce any bale of cotton ginned after the effective date of the
tare standards on which the bagging, ties, or patches do not conform
with such standards for tare. It is contemplated that responsibility
for the manufacture and distribution of bale-covering materials con-
forming to the tare standards would be placed upon manufacturers or
distributors of such materials. Farmers, gInners, oompressmen, and
cotton merchants who ship cotton ginned after the effective date of
the tare standards would be relieved of responsibility by using
materials guaranteed by the manufacturer or distributor to conform
to the standards. In the case of such guaranty, the seller of the
material would be amenable to prosecutions, fines, or other penalties
which would otherwise attach in due course to the shipper of cotton
covered with nonstandard materials. This provision would protect
farmers, ginners, compressmen, and cotton merchants who act in good
faith in the covering of cotton bales.

Obviously as to interstate and export transactions, the
deliberate use of nonstandard materials would not only be unlawful
but would operate to reduce the salability of bales of cotton so
covered.

(34) Would the adoption of net-weight trading and standards
for tare place an extra burden on ginners, oompressmen, and warehouse-
men?

Neither ginners nor oompressmen nor warehousemen would be
directly affected by the adoption of net-weight trading except that
records of bale weights would be in terms of net weights rather than
gross weights as at present. The adoption of standards for tare
would, however, require that bagging and ties used by ginners, and
patches and ties applied to bales by oompressmen, conform to the tare
standards. As the costs of these materials would continue to be
passed on to growers or cotton merchants, as the case may be, this
would not place any hardship on such service agencies as ginners,
oompressamen, and warehousemen.











- 20 -


The provision of an interval between the promulgation of
tare standards and the date upon which their use would be required,
would enable muoh groups to use existing stocks of nonstandard
materials before the effective date of the standards.

(35) Would standardization of tare oause serious hardship
to manufacturers and distributors of cotton bale-covering materials?

If tare standards were adopted, manufacturers and distribu-
tors of bale-covering materials would have a market for only those
materials that would conform to the standards. For manufacturers
and distributors of those materials for which standards were pro-
vided, this would require merely an adjustment to the standards.
Manufacturers or distributors of materials not provided for in the
standards would find it necessary to change to standard materials
or to discontinue business in this field.

If the tare-standardization program Included all the suit-
able materials now in use, the necessary adjustment on the part of
manufacturers and distributors would be relatively simple. The
standards would require the production and distribution of materials
of dimensions, weight, and strength within a prescribed range of
tolerance. In most instances this could be accomplished with
present equipment and facilities. In some instances changes in the
quality of raw materials used might be necessary In order to meet
strength requirements.

The adoption, without notice, of definite standards for tare
would probably find manufacturers of bale-covering materials,
dealers, ginners, and oompresmen with stocks of suoh materials on
hand that would not conform to the standards. In fairness to these
interests, a sufficient interval of time would need to be allowed
between the date the standards were promulgated and the effective
date of such standards to permit using up, as nearly as practicable,
existing stocks of nonstandard materials. Probably a year would be
required for this adjustment.


..........










- 21-


RELATION OF NET-SIGHT TRADING AND STANDARDS FOR TARE
TO IMPROVEmENTS IN COTTON PACKAGING

(36) Would the adoption of not-weight trading and standards
for tare provide a complete remedy for the present unsatisfactory
sitmation with respect to the appearance of American cotton bales?

Although the adoption of net-weight trading would remove
obstacles to improvements in the packaging of American cotton and
the adoption of tare standards would provide a positive means of
Improvement, it should be recognized that these reforms alone
would not completely solve the problem of unsatisfactory packaging.
Under present methods of sampling, samples usually are out from
two sides of each bale with each change or prospective change of
ownership of the bales. The result is that the original bale
coverings usually are badly mutilated and in some oases almost
eampletely destroyed by the time the bales reach the consuming
.ill. Although the use of more suitable materials for the original
wrapping would Improve the appearance of American bales, the
problem of a satisfactory package would not be completely solved
in this manner. Fundamental changes in sampling methods will be
required before a complete solution is reached.

(37) tat can be done to solve the problem of sampling?

It Is believed that the solution to the problem of sampling
eam be found In devising a means for the mechanical sampling of
bales of cotton while they are being formed at the gin so as to
provide samples that represent a cross-section of the bale in each
instance for use In trade channels, Thls would eliminate the need
for cutting the bales after they are turned out of the gin press
and would provide a more satisfactory basis for the classification
of cotton than Is afforded under the present system of sampling.
Mabers of the technical staff of the Agricultural Marketing Service
of the U. S. Depasrtnt of Agriculture are working on this problem
with a view to its solution.





UNIVERSITY OF FLORIDA.
IINI3IIMIIM HI II '
3 1262 08918 7719 0i




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