CLASSIFYING OF COTTON

Mr. WHITTEN. I am of the opinion that your reclassification of much of this cotton is a reflection on the classing services. I realize that for some of it you have some arguments about the length of time. I am told practically all this cotton moved out of the hands of the purchaser at grades equal to or better than your first class. It has been testified to me by folks who should know that, notwithstanding the fact you have reclassed it and paid these large sums to big international cotton firms, they in turn sold the cotton in world trade at grades beyond the first grade you gave them.

I would like to know if the Department has made any investigation as to the basis on which this cotton was sold. You may sell it in world trade on a different description.

I would like to know on a comparative basis. If the Department does not know, I would like to insist that we set aside some money for you to make a study, because this whole story is not one that looks good.

After you sold this cotton on a competitive bid basis by going in there and classing it down and paying out this rebate to these purchasers, the largest purchasers being international, it makes one wonder whether you should not follow it up to determine whether we should not prohibit any reclassing in the future.

As you recall, I wanted it on a sample basis where the buyer could see what he is getting and that ended it. I am still of the opinion that that would be much more sound.

AUTHORITY TO INCREASE ACREAGE ALLOTMENTS

Now, as you recall, Mr. McLain, I spent a great deal of time with you and the Secretary in an effort to convince you. Having sold all this cotton in the world market at competitive prices at the instance of this committee, and having gone to all the trouble trying to regain world markets, I felt it important to prevent the situation which we had before. At one time we had an export embarge against any cotton leaving the country.

In view of the tremendous signup the cotton farmers had made and in view of their action of the Congress in appropriating additional money so as to treat them all alike, I pointed out that I felt the Department should recommend the legislation which I introduced, which would authorize the Department to sell back some of this oversigned-up acreage for dollars, to farmers in a county where they wished to farm it.

At that time you had not reached any conclusion. So far as I know you still have not reached one.

I would like at this point in the record to have the part of the Agriculture Adjustment Act, which sets up the authority of the Secretary to increase acreage.

It is my interpretation of that act that the Secretary has authority in view of the tight supply situation, to increase it. I realize that he has taken a different view, but I would like the record to carry that language at this point.

(The authority referred to is as follows:)

The authority of the Secretary to increase acreage is contained in section 371 of the Agricultural Adjustment Act of 1938, as amended, as follows:

"(a) If at any time the Secretary has reason to believe that in the case of corn, wheat, cotton, rice, peanuts, or tobacco the operation of farm marketing quotas in effect will cause the amount of such commodity which is free of marketing restrictions to be less than the normal supply for the marketing year for the commodity then current, he shall cause an immediate investigation to be made with respect thereto. In the course of such investigation due notice and opportunity for hearing shall be given to interested persons. If upon the basis of such investigation the Secretary finds the existence of such fact, he shall proclaim the same forthwith. He shall also in such proclamation specify such increase in, or termination of, existing quotas as he finds, on the basis of such investigation, is necessary to make the amount of such commodity which is free of marketing restrictions equal the normal supply.

"(b) If the Secretary has reason to believe that, because of a national emergency or because of a material increase in export demand, any national acreage allotment for corn or any national marketing quota or acreage allotment for wheat, cotton, rice, peanuts, or tobacco should be increased or terminated, he shall cause an immediate investigation to be made to determine whether the increase or termination is necessary in order to effect the declared policy of this Act or to meet such emergency or increase in export demand. If, on the basis of such investigation, the Secretary finds that such increase or termination is necessary, he shall immediately proclaim such finding (and if he finds an increase is necessary, the amount of the increase found by him to be necessary) and thereupon such quota or allotment shall be increased, or shall terminate, as the case may be.

"(c) In case any national marketing quota or acreage allotment for any commodity is increased under this section, each farm marketing quota or acreage allotment for the commodity shall be increased in the same ratio.'

Mr. WHITTEN. Have you any idea as to how much of this cotton we have sold on a competitive bid that is still in the hands of the buyer and has not moved in the trade or has not moved into the mills? Do you have any way of estimating that?

Mr. BERGER. I don't think we have. We would just take guesses on it. It would not be anything factual or worthwhile.

CLASSIFYING OF COTTON

Mr. WHITTEN. Have you made any study of your cotton classing service, in view of this great difference between what your own classing service first set and the lower class that they gave after these purchasers had gotten it?

Have you made any study of your classing service?

Mr. BERGER. Yes, we have. We made a review of that.

Mr. BEACH. That is the AMS survey. It does not fall within the functions of the Commodity Stabilization Service.

Mr. MCLAIN. The study was made, though.

Mr. BEACH. Yes.

Mr. WHITTEN. Could we have a copy of that report made available to us?

(The report referred to is as follows:)

RECLASSIFICATION OF COTTON RESULTING IN SUBSTANTIAL REFUNDS

TO PURCHASERS

The regulations governing cotton classification for the past 40 years have always provided that the classification of all samples shall be on the basis of the official cotton standards of the United States. The instructions of the Cotton Division to all cotton classers provide that "no knowingly easy classing, no knowingly hard classing, nor any other deviation from the standards for any purpose is permissible." The only way we can provide a cotton classing service

which has real value to farmers and merchants is to adhere as closely as humanly possible to the official standards. All classers employed by the Division are supervised through a strict and comprehensive supervision system so as to keep differences in classing between men and offices at a minimum.

Differences in the classification of bales at the time of entering the Commodity Credit Corporation (CCC) loan program and at the time of reclassification when the bales are sold by CCC may result from a number of different factors. Some of the more important of these are as follows: (a) changes in color and other quality factors of the cotton while in storage; (b) variations in the cotton itself; (c) variations in classing from time to time as a result of the human element; (d) culling of loan stocks through selective purchase of bales by cotton buyers; (c) occasional clerical errors on the part of Division employees; and (ƒ) occasional errors at the gin or warehouse in the identification of bales at the time of sampling. Probably the most important factor contributing to lower grades assigned bales on reclassification for sale purposes is the deterioration of color and quality factors while in storage.

The Cotton Division found long ago that color change in cotton is a serious problem in standardization. Color therefore became one of the earliest subjects for study when laboratory facilities were expanded in 1927-28. In 1933, after an instrument had been designed to measure cotton color, the first of several reports on color stability was published. Today, by means of the Nickerson-Hunter Cotton Colorimeter, an electronic, automatic, self-standardizing instrument recently developed for this work, color has become one of the few cotton quality factors we are able to measure quickly, easily, and accurately. Consequently, there has been much information accumulated concerning the amount, kind, and rate of color change of cotton during storage. From tests on thousands of cottons it is known that under usual conditions of storage cotton will develop a deeper yellow color the longer they are stored; there will be more increase in color in high grade cotton than in low grades and more increase in white, spotted, and tinged grades than in gray grades; and that cottons in cool, dry storage will change more slowly than similar cottons in hot, humid storage. It is not unusual for cottons that measure white when put into storage to measure spotted, sometimes even tinged, when withdrawn from storage.

A storage study now underway concerns a series of grade standards held at different humidities and temperatures, and examined periodically for evidence of change. Included in the study are paired sets at 50, 70, and 100° F., one of each pair at low humidity (50 percent) and the other at high humidity (85 to 90 percent). Significant color change has been found in some of these sets even after 6 months of storage, the change being greater under the higher temperatures, and under the higher humidity at each temperature. Color change for the paired sets stored at 100° is illustrated in the grade diagrams of figure 1. These changes are for samples stored hardly more than 1 year, results for low humidity at the left, for high humidity at the right.

To illustrate the dollar values involved in such changes during storage, prices for (500-pound bales, based on 1956-57 average spot quotations for 1-inch cottons) are entered for corresponding grades in the diagram in figure 2. For example, the average 1956-57 price for Good Middling, 1-inch cotton is shown at $172 per bale. When a bale of such cotton changes in storage to the color of Good Middling Spotted, the value is $150 per bale, and after a change to Good Middling Tinge, it is $128. The very considerable changes under storage that figure 1 shows are possible may be translated into dollar differences by reference to figure 2.

As evidence of the extensive discoloration process and other deterioration of quality factors in cotton sold by CCC we are attaching an excerpt from material presented by domestic cotton spinners to the National Cotton Council as a basis for their resolutions for 1957, exhibit 1.

A further evidence that a large proportion of the cotton sold by CCC under its export sales announcements was colored or otherwise of lower qualities was the fact that prices of these qualities of cotton were pushed down in relation to the base quality (Middling 1 inch) after CCC stocks become available for export sales. Average prices for the spotted and tinged grades in the 1956-57 season were lower in comparison with the base price than for any season since 1949-50.

Evidence is conclusive that there is a substantial variation in the quality of cotton not only from bale to bale from the same field but within bales. This means that successive samples from the same bale may properly show differences in classification. All Division classers are instructed to class samples strictly in accordance with the official standards regardless of any classification that may have

been previously placed on the bale on the basis of a different sample. Care is exercised to avoid clerical errors in classing offices, and it is believed that these are relatively few. Cotton samplers are given detailed written instructions and are inspected as often as possible to keep sampling errors and irregularities to a minimum.

This

There are many methods of evaluating cotton; by classing, by laboratory techniques, and from spinning results. By far the most commonly used, the cheapest and perhaps even the best, is the evaluation made by classers. method, however, is a subiective evaluation made to a very fine degree, i. e., judging uneven fibers to a 32d of an inch by inspection, and is not fully repeatable. Thus second classification of any lot of cotton will show up certain variations, and with variations in class it is possible to select out desirable bales in each stage of merchandising.

In deciding which bales to put under loan, farmers as a general rule select bales that are not readily salable or bales that they think may have been overclassed. In addition, farmers are given a definite advantage in the loan program in that they are permitted to select for review classification any bales desired. This means that they may take advantage of errors of underclassing and let stand errors of overclassing. The fact that they do take advantage of this situation is shown by the results of reviews which indicate many more bales raised on review than lowered.

Once bales are taken into the loan, the culling process by cotton buyers begins. Cotton buyers seek out and purchase from farmers bales of more desirable qualities and bales that may have been underclassed at the time of entering the loan. Loan cotton is subjected to continual culling so that bales of undesirable qualities and bales with mistakes in classing on the easy side tend to be perpetuated in stocks. The culling of stocks of cotton to remove those bales most advantageous to the receiver or buyer is not peculiar to CCC loan stocks. This problem exists in most every situation where a person handling cotton has the opportunity to cull. Cotton futures exchanges in 1956 placed a penalty on cotton remaining under certification for delivery on futures for more than 12 months. One of the primary purposes of the penalty was to discourage leaving bales under certification for long periods of time and thereby avoid a series of cullings that would result in an accumulation of low quality bales in futures stocks.

We undertake to employ the best qualified classers available on a seasonal basis and supervise their work with thoroughly trained and experienced permanent workers. In addition to local classing supervision, central supervision of all offices is maintained on a daily basis. Each classer has samples taken from him at random during the day and these samples are classed the same day by his supervisor. A part of these samples are then sent to a central supervisory board in Memphis and are used by that board in adjusting any deviations from the standards found for any of the classing officers throughout the belt.

In establishing standards and in classification the latest laboratory devices are used to maintain the same level of classing. Whenever practicable the central supervisory board in Memphis uses laboratory devices as an aid in verifying its determinations of cotton quality. Among such devices used are the colorimeter for color of cotton, the fibrograph for length of staple, and the micronaire instrument for character. In addition, periodic comparisons of different kinds of classing (Smith-Doxey, form A, futures, etc.) are made to see that all are on the same level.

During the past several years special efforts and studies have been inaugurated to insure that the classing of all samples, regardless of type of service, will be on the same level and as accurate in terms of the official standards as humanly possible. While we will be the first to admit that variations in classing still occur due to various factors discussed in this memorandum, we firmly believe that the accuracy of classification by classers employed by the Department compares favorably with that of any group of classers in this country.

The above paragraphs indicate that the many factors to be considered tend to result in lower classification after cotton has been in storage for some time. The refunds mentioned in the report of $46 million on 4,268,000 bales means an average reduction in value of $10.77 per bale. It should be noted that a reduction on present loan differences, from Middling 1 inch to Middling Spotted 1 inch amounts to 5.75 cents per pound or $28.75 per bale. Thus the average loss is substantially less than one-half of such a reduction from white to spotted.