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| Washington, D.C. Vv
COOPERATIVE MARKETING
OF COTTON
By
GEORGE 0. GATLIN, Associate Marketing Economisi
Bureau of Agricultural Economics
CONTENTS
‘ Page
Gackereund ef the Movement 3 . 5°. <5 2 <0 0 0 0 te wie see e\e 2
ermmetary, Orgnmistions *.°). ‘a. o/c) —= 26-1, 1
2 BULLETIN 1392,,U0. S. DEPARTMENT OF AGRICULTURE
TABLE 1.—State-wide and regional cooperative cotton-marketing associations,
dates of incorporation, and number of members—Continued
Date of incorporation Membership
Association Headquarters When =a
1921 1922 1923 1924 | organ- spl
ized
| Number Number
Arkansas Cotton Grow- | Little Rock, Ark__|__________ Biebi: 25 tees =e ose ee 5, 500 | 14, 569
ers’ Cooperative Asso-
ciation.
South Carolina Cotton | Columbia, 8. C__-|._...____- JUNCRIG ho ae ole ee 9,981 | 14,912
Growers’ Cooperative
Association.
Georgia Cotton Growers’ | Atlanta, Ga_______]__________ DUNO. 2 | aye a 12,500 | 43, 198
Cooperative Associa-
tion.
Alabama Farm Bureau | Montgomery, Ala_|__________ JULY goal a os | ae 11,380 | 25, 148
Cotton Association. |
Louisiana Farm Bureau | Shreveport, La____|__________|_--_-_-_-_- Heb, 24) |p ae es 5, 230 6, 253
Cotton Growers’ Coop-
erative Association.
Mississippi Farm Bureau | Jackson, Miss_____|_--_____-_|_--------- | Moar.20) (-=5.< 22.2 11, 773 | 21, 224
Cotton Association. |
Tennessee Cotton Grow- | Memphis, Tenn___|__________ |S JUNG Asem oe 6, 000 8, 785
ers’ Association. |
Missouri Cotton Grow- | New Madrid, Mo_|___--__.__|_--_--___- er spars La js Se ae 470 796
ers’ Cooperative Asso- |
ciation. |
filimois: Cotton Growers’-| Mound City, [lee Spies Fen se es Oct. 8 21 21
Cooperative Associa- |
tion. |
otal. eo [aah te bs SS yO IED Rea ai te es os ord | A abe ee pies 284, 867
BACKGROUND OF THE MOVEMENT
EARLY ORGANIZATION ACTIVITIES
The first serious effort by producers to develop cooperative market-
ing of cotton on a large scale occurred soon after the Civil War.
Before the war there existed a g neral dissatisfaction with the cot-
ton-marketing system, a dissatisfaction that was greatly intensified
during the period of depression and reconstruction that followed.
There developed in this reconstruction period a widespread interest
in farmer organization, comparable in its appeal and enthusiasm only
to the contemporary cooperative movement which had its beginning
in the period of depression following the World War.
The Grange, or Patrons of Husbandry, which was organized in
1867 primarily as a social and fraternal organization, soon developed
an ambitious marketing program. During the period of its spec-
tacular growth in the early seventies, plans for the collective selling
of cotton were put into effect by the granges of Alabama, Georgia,
Mississippi, and Louisiana. Established firms were appointed as
bonded sales agents to handle cotton on a commission basis. In addi-
tion to agents in domestic markets, the Mississippi grange had a
representative in Liverpool. The period of actual marketing under
this plan was brief. Following 1875 a rapid decline occurred in
grange membership and the agency system was discontinued.
Between 1885 and 1905 a number of organizations were developed
for the purpose of bringing about improved conditions in the South
through concerted action on the part of cotton growers. The South-
ern Cotton Association, during its active years, was representative,
inasmuch as its campaigns were directed toward increasing prices by
decreasing production, holding the crop, or both. During this period,
and to a large extent in the preceding and subsequent periods, the
COOPERATIVE MARKETING OF COTTON 3
price appeal was dominant in organization campaigns. Usually the
program combined (1) acreage reduction and (2) holding the crop
for an established price.
This crop-restriction, price-fixing program was sponsored and used
by the Farmers’ Educational and Cooperative Union, following its
formation in 1902. The Farmers’ Union was very active for a num-
ber of years in conducting campaigns for limited production, advo-
eating crop diversification, and promoting the establishment of co-
operative warehouses for storing and holding cotton. It endeavored
to prevent the large volume of fall selling by means of storing and
financing in cooperative warehouses, and by naming a minimum
price below which its members should not sell. In addition to stimu-
lating warehouse construction, it advocated the sale of cotton on the
basis of its class. Local marketing associations were later encour-
aged.
= 1917 the United States Department of Agriculture and the
Agricultural and Mechanical College of Texas entered into a coop-
erative agreement providing assistance to community organizations
of cotton growers in improving local marketing conditions. The
purpose of this work, which was demonstrational in character, was
to emphasize the relation of variety to uniformity of fiber; the
advantages of growing a single variety in a community; the benefits
accruing to the growers from proper ginning, baling, classing, and
storing; and the economies in assembling and selling in large lots.
That these purposes could be accomplished by local cooperation had
been demonstrated by growers at Scott, Ark., who had organized an
association for like purposes in 1912.
The formation of a number of these organizations in 1917 and the
results obtained under the plan attracted considerable attention. By
1921 there were 43 organized communities in Texas, 6 in North Caro-
lina, 19 in South Carolina, 2 in Mississippi, 3 in Arkansas, and 12 in
Oklahoma, a total of 85 community organizations. During that
year classers appointed as agents by the Department of Agriculture
and paid in part by the cooperating farmers and the State colleges
of agriculture classed over 450,000 bales of cotton. Of this quantity,
about 60,000 bales were sold collectively by the growers.
A few of the organized communities have continued this local one-
community type of cooperative marketing, but most of them ceased
to operate with the advent of the large, centrally controlled State-
wide associations.
Granting that cotton growers have had a decidedly limited expe-
rience in cooperative organization and collective enterprise as a back-
ground for the highly organized business cooperatives that are now
in operation, it is apparent from a careful study of early organiza-
tion activities that each effort or movement toward cooperation con-
tributed something to the development or form of the contemporary
movement.
IMMEDIATE INFLUENCES
_The economic conditions immediately responsible for the forma-
tion of cooperative cotton-marketing associations after the World
War were somewhat similar to those that influenced the Granger
movement in the South’s reconstruction period. From a very low
price in 1914 cotton reached an extremely high price in the 1919-20
season. Then came the depression of 1920-21. The average price
4 BULLETIN 1392, U. 8S. DEPARTMENT OF AGRICULTURE
of middling cotton in New Orleans was 40.52 cents in June, 1920,
and 14.64 cents in December. In March, 1921, it was 11. 08 cents.
At some inland points middling cotton was offered at as low as 8
cents per pound. Both the 1919 and 1920 crops had been grown
at great expense, and as a result of this enormous price decline in
1920 cotton producers faced disaster.
There were other reasons, traceable in part at least to war in-
fluences, that contributed to ‘the development of widespread dissat-
isfaction with the established cotton- marketing system. In 1912
the United States Department of Agriculture began some research
work relative to cotton marketing, the results of which showed that |
cotton was not sold on the basis of quality in most local markets.
The disadvantage of selling on the average or “ hog-round ” price,
which was being brought to the growers’ attention, was emphasized
by the wide differences for orade and staple that prevailed in 1919
and 1920,
In the 10-year period beginning in 1914 the United States Depart-
ment of Agriculture, the agricultural colleges in the Southern
States, and ‘other agencies did much that helped to pave the way
for organized marketing by producers. Not only did they make
available results of fundamental research work, thereby enabling
the farmer to realize his problem, but this work also influenced
much valuable State and National legislation.
In 1914, nine grades of upland white cotton were promulgated
as official cotton standards of the United States under provisions
of the cotton futures act. Standards for tinged and stained cotton
were promulgated under the same act in 1916, and standards for
grade and length of staple for sea-island and American Egyptian
cotton in 1918. In accordance with an amendment to the act in
1919 a cotton-quotation service was developed and weekly reports
on spot prices and cotton-market conditions were made available.
The United States cotton standards act of 1923 provided, among
other things, that in transactions in interstate and foreign commerce
in which cotton is described by grade and staple the description
shall be in terms of the official cotton standards.
The United States warehouse act of August 11, 1916, amended in
1919 and 1923, provided for the licensing under certain conditions
of warehousemen who store agricultural products moving in inter-
state or foreign commerce. Many States also enacted warehouse
legislation during the period. The War Finance Corporation was
revived in January, 1921, as a special aid to agriculture. The agri-
cultural credits act of 1923 provided for the establishment of 12
Federal intermediate credit banks to supply production and market-
ing credit. The Capper-Volstead Act, which became a law on
F ebruary 18, 1922, exempted agricultural organizations from ne
Sherman antitrust law. Since 1920, 37 States have enacted,
W hole or in part, what is commonly called the “ standard maces
act,” an act providing specifically ‘for the incorporation and opera-
tion of farmers’ cooperative marketing associations.
AMERICAN COTTON ASSOCIATION
An important factor in the development of cooperative cotton
marketing was the organization in May, 1919, of the American Cot-
ton Association, a south- wide association of farmers, bankers, mer-
COOPERATIVE MARKETING OF COTTON 5
chants, warehousemen, and others interested in promoting and pro-
tecting the interests of the cotton growers. The first annual meeting
of this association, held at Montgomery, Ala., April 13 and 14,
1920, was attended by delegates from every cotton-producing State
and by representatives from the United States Department of Ag-
f riculture, State colleges of agriculture, State departments of agr icul-
' ture, and leading men in the cotton ‘industry. At this meeting a
committee of 24 men was appointed to work out and. recommend
plans for the establishment of cooperative marketing among cotton
producers. This committee reported in September, 1920 : at a sec-
ond meeting in Montgomery, when resolutions were adopted to the
effect that the plan submitted be put into effect throughout the Cot-
ton Belt. The plan, which involved the formation of local associa-
tions and their subsequent federation, was published and given wide
publicity, but failed to arouse the action recommended.
CONTEMPORARY ORGANIZATIONS *
OKLAHOMA COTTON GROWERS’ ASSOCIATION
The Oklahoma branch of the American Cotton Association had
91 delegates at the meeting at Montgomery, Ala., April, 1920. ‘These
delegates returned home enthusiastic about the possibilities of coop-
crative marketing and much impressed with the idea of organizing
an association modeled along the lines of certain dried- fruit or-
ganizations in California.
They did not wait for the report of the American Cotton Asso-
ciation’s Committee on Cooperative Marketing, but at a meeting,
ess 10 and 11, appointed a special committee of their own to draft
a cooperative- -marketing plan. The plan submitted by this commit-
tee of six contemplated local organizations to class, warehouse, and
' sell cotton, eventually combining into county and then federating
into a state-wide association. Like the plan later submitted by the
committee of the American Cotton Association, this report did not
arouse enthusiasm. ‘The special committee then planned a state-
wide organization such as had been outlined in an outstanding
address at the general meeting at Montgomery. This plan, w hen
_ worked out, was approved at a meeting June i, 1920. At a subse-
quent mass meeting, attended by delegates from 32 counties, the
scheme of organization and the proposed long-term marketing con-
tract were explained in detail and approved. At the same meeting
a permanent organization committee was formed.
The organization committee immediately began an educational
campaign ‘to acquaint the people of the State with the plans and pur-
poses of the proposed association. Indorsements were obtained from
influential organizations of the State, including the Grange, the
Farmers’ Union, and the State bankers’ association. It was pro-
posed that an extensive publicity campaign be conducted, but inas-
much as this involved an estimated cost of $50,000 it was abandoned.
In fact, financing actual organization activities was an early problem
of the committee.
a a ©
1 Wide indebtedness is acknowledged for facts and suggestions incorporated in this and
Subsequent chapters, particularly to the associations and the American Cotton Growers’
Exchange. Figures given in both tables and text were obtained from either the associa-
tions or the exchange. Charts were furnished by the exchange and the North Carolina
association, and photographs by the Oklahoma and Texas associations.
6 BULLETIN 1302; U. 8. DEPARTMENT OF AGRICULTURE
Finally, with the aid of the extension division of the Agricultural
and Mechanical College, a plan was proposed which provided for a
central organization committee, county committees, and organization
teams in every community. Meetings were held in schoolhouses, and
the team workers personally visited the cotton growers in their re-
spective communities. The county agents advised in perfecting the
organization machinery, in arranging meetings, and otherwise facili-
tating the work of the organizers. Special membership campaigns,
called “drives,” were conducted by counties and throughout the
State.
The date set for beginning the membership campaign was Decem-
ber 1, 1920, but prior to this time many contracts had been signed.
Early in October organization work had been started in Jackson
and Grady Counties, mainly as a test of both the efficiency of the or-
ganization machinery and the sentiment of the cotton growers. By
January 1 approximately 5,000 farmers had signed the organization
agreement and marketing contract. On March 28 a state-wide drive
was begun and during the week it lasted it was estimated that several
thousand farmers took part in soliciting members. When the mem-
bership campaign closed on April 1, 1921, a full month before the
established closing date, it was found that 35,000 members had been
obtained at a cost of approximately $3 per member. The contracts
signed represented over 400,000 bales, on the basis of 1919 produc-
tion, or 100,000 bales above the minimum sign-up necessary for the
agreements to become binding.
Following the close of the successful membership campaign, a
temporary board of directors was named and the association was in-
corporated under Oklahoma laws, April 26, 1921. A permanent
board of directors was elected on May 23, the members voting by
mail. The board consisted of 11 directors, 1 from each of 10 desig-
nated districts of approximately equal production, and 1 being named
by the president of the State board of agriculture for the purpose of
representing the interests of the general public. The first directors’
meeting was held May 25 and 26. Offices were established in Okla-
homa City. The first bale of cotton was delivered August 18, 1921.
The association financed its first year’s operations, not without
some difficulty, with loans from Oklahoma banks and from the War
Finance Corporation, borrowing approximately $3,000,000 from the
former and $2,500,000 from the latter. The average amount ad-
vanced to members on delivery was $50 per bale. This was followed
by a second payment of $10 per bale in February, and a third pay-
ment of $20 per bale was made on three pools in March, at which
time the association had sold about two-thirds of its cotton. Al-
though only about one-fourth of the expected volume of cotton had
been received, the first season’s total business amounted to $8,400,000
when final settlement was made on July 8, 1922.
STAPLE COTTON COOPERATIVE ASSOCIATION
Prior to the Montgomery meeting of the American Cotton Asso-
ciation a cooperative-marketing plan had been proposed for the
growers of long-staple cotton in the Yazoo-Mississippi Delta. It
was abandoned, however, in favor of the same general plan for a
centralized nonstock, nonprofit organization that had so appealed to
the leaders of the movement in Oklahoma.
the faghlieass
COOPERATIVE MARKETING OF COTTON 7
The plan of the proposed centralized association and the contract
which had been prepared were explained to the growers and the
public at three general meetings in the delta in the summer of 1920.
An organization committee of 3 men, with authority to increase the
number to 18, was formed in July. This committee of 18 later be-
came the organizing directors, and eventually the elected directors
of the permanent association.
Beginning in the summer of 1920, the membership campaign con-
tinued over a year, until September 1, 1921. At its close 1,800 con-
tracts had been signed, representing 216,000 bales of cotton based
on the average of production for the years 1916 to 1919, inclusive.
The minimum quantity specified in the contract was 200,000 bales.
The association was incorporated under the laws of Tennessee on
May 23, 1921, several months prior to the close of the campaign.
It established an office at Greenwood, Miss., in July, and was in
operation in August, 1921.
Twenty-one men compose the board of directors, 18 of these being
erower-members elected by the membership, and 3 being bankers
nominated by organized banking groups in the staple-cotton dis-
tricts of Mississippi, Arkansas, and Tennessee to represent the in-
terest of the general public. Five men of this group compose the
executive committee.
The membership is composed largely of growers of long-staplé
cotton in Mississippi, but includes some members in the delta sec-
tions of Tennessee and Arkansas. There are six voting districts.
Local offices are maintained at 13 receiving points in the delta,
each in charge of a local manager. The association has sales rep-
resentatives in the Carolinas, New England, Liverpool, and on the
continent. :
The Staple Cotton Cooperative Association is not a member of the
American Cotton Growers’ Exchange and is not affiliated in any way
with any other organization. It was not promoted by any organized
farm group and did not seek the aid of such groups during the cam-
paign. The leaders of the movement and the present directors of the
association have maintained that their association is a delta organi-
zation, controlled exclusively by delta men, and for the promotion
of delta interests. They have taken the position that because of the
association’s peculiarly local character it should not be closely con-
nected with outside organizations.
In its four years of operation the association has handled a total
of over 550,000 bales of cotton, with an actual value of over
$80,000,000.
ARIZONA PIMA COTTON GROWERS
Following the severe decline in cotton prices in the 1920-21 season,
the Arizona American Egyptian Cotton Association sponsored the
movement which resulted in the formation of the Arizona Pima
Cotton Growers.
There were 86 men on the organization committee, which was
formed at Phoenix after a series of group meetings at different
points in the Salt River Valley. The membership campaign began
in the spring of 1921 and ended July 18, 1921. No minimum number
of bales was established as a goal, but the committee planned to
obtain contracts covering 26,345 of the 54,690 acres planted in cotton
i>
8 BULLETIN 1392, U. S. DEPARTMENT OF AGRICULTURE
in the valley, or one-half of all the acreage not under control of tire
companies. The 713 contracts obtained by July 13 represented
27,153 acres.
The organization was incorporated in Arizona, July 13, 1921, and
directors were elected on the same-date. The board of directors is
composed of representatives from the 14 voting districts, 5 directors
at large, and 2 public directors. The Governor of Arizona and the
Maricopa County Bankers’ ‘Association each appoints one of the
public directors. An office was established at Phoenix and the asso-
ciation began to receive cotton in September.
In 1923, as a result of high ginning rates and low prices for cotton-
seed, a subsidiary company was for med, the Arizona Cotton Process-
ing Co., all of the common stock being owned by the Arizona Pima
Cotton Growers. To this company the association loaned its reserves,
amounting to about $90,000, and the company in turn purchased a
one-fourth interest in the Mutual Cotton & Oil Co., a local corpora-
tion owning about 15 gins and 2 oil mills. The Arizona Cotton
Processing Co. for this one-fourth interest paid $60,000 in cash and
executed notes for $75,000 and $43,000.
TEXAS FARM BUREAU COTTON ASSOCIATION
Vhen the Texas Farm Bureau Federation was formally organized
in June, 1920, there were several large farmers’ or eanizations in the
State, including the Farmers’ Union and the Texas division of the
American Cotton Association. Another organization was the United
Cotton Growers of America, an association which had its beginning
at Corpus Christi in 1919, and which was actively engaged in 1920
in a membership campaign. Although this organization had not
engaged in business, its stated purpose was to market cotton. Local
branches had been formed in several southwestern Texas counties,
and in October, 1921, the organization reported a total membership
of 3,000 persons, repr esenting 70,000 bales of cotton.
Soon after the formation of the Texas Farm Bureau Federa tion,
an agreement was entered into whereby the Texas division of the
American Cotton Association became a branch of the farm bureau.
Close working relations were established with the Farmers’ Union
and the United Cotton Growers of America, and at a meeting of
the representatives of the four organizations, held November 16,
1920, plans were made for the immediate organization of a state-wide
cotton- marketing association. A committee of 21 was named by the
Farm Bureau Federation, December 13, to develop plans and carry
on organization work under its auspices.
The committee met in Dallas in December, 1920, and remained in ses-
sion for one week. It adopted, with minor changes, the same plan
which had been approved and adopted in Oklahoma, where or ganiza-
tion activities were then beginning. The plan was also given general
approval at the first annual convention of the Texas Farm Bureau
Federation in Dallas, January 26-27, 1921.
The membership campaign began March 1, the agreement stipulat-
ing that the contracts signed would be effective if the signatures
obtained by July 1, 1921, “represented 1,000,000 bales. In the event
the quantity signed should be less than 1,000,000 and more than
500,000 bales, the agreement provided that signers should have
a al A A
COOPERATIVE MARKETING OF COTTON 9
the right to cancel or withdraw their membership. The goal of
_the committee was, therefore, 1,000,000 bales; the minimum sign-up
necessary for organization, after the right of withdrawal had been
exercised, 500,000 bales. The membership fee was $10, with the
understanding, as the result of agreement between the Texas Farm
Bureau Federation and the United Cotton Growers of America, that
in consideration of their promotional activities the members of their
organizations might join the association without the payment of
this fee.
The committee was given active assistance by approximately 50
county farm bureaus. In June, the State Farm Bureau Federation
had 125 paid solicitors at work. The Texas Bankers’ Association
indorsed the movement and appointed a committee to assist in the
sign-up campaign. When it closed on the date specified, 19,146
Fic. 1 Headquarters of the Texas Farm Bureau Cotton Association, Dallas, Tex. This
property, owned by the association, is valued at $171,250
contracts had been signed, representing more than 600,000 bales on
the basis of 1920 production.
Inasmuch as the sign-up was less than the 1,000,000 bales agreed
upon, signers were given an opportunity to cancel their contracts.
The committee, however, believed that cancellation would not re-
duce the number of bales under 500,000, and they proceeded to
effect permanent organization. The association was incorporated
in Texas, July 27, 1921. Twenty-three directors composed the
board of directors, 20 of these representing the membership of the
20 districts of the association, and 3 being appointed, respectively,
by the Governor of Texas, the president of the State agricultural
and mechanical college, and the president of the State Farm Bu-
reau Federation. Five of this group were named as an executive
committee. An office was established in Dallas (fig. 1), and the
association was ready for business in September, 1921.
71246°—26——2
meer te eee
“
10 BULLETIN 1392, U. S, DEPARTMENT OF AGRICULTURE
ARKANSAS FARMERS’ UNION COTTON GROWERS’ ASSOCIATION
In the winter of 1920-21 leaders of the Arkansas Farmers’ Union
became interested in the possibilities of organizing a cooperative
cotton-marketing association according to the plan which was then
attracting south-wide attention. As a result of the decision to
organize such an association, exclusively for the benefit of members
of the Farmers’ Educational and Cooperative Union, the president
of the union appointed an organization committee in April. There
were 18 men on the committee, including the advisory council of
the Farmers’ Union, composed of 5 men, and 13 other members of
the organization. The committee began work immediately. July
30, 1921, was the date set for the close of the campaign, and the
minimum number of bales to be obtained by that date, based on
1920 production, was 40,000.
The minimum stated in the organization agreement was not ob-
tained by July 20, but the campaign was continued under certain
provisions in ‘the ‘agreement which permitted continuation at the
discretion of the committee. At the annual State meeting of the
Arkansas Farmers’ Union, August 2, 1921, it was found that about
3,500 signers, representing approximately 20,000 bales, had not
exercised their withdrawal privilege, or had ‘signed the contract
since July 20. Permanent organization was decided upon. Articles
of incorporation and by- laws were drawn up and approved at a
meeting on October 7, and the association was formally incor-
por: ated under the laws of Arkansas on October 31, 1921.
The board of directors is composed of 16 men, ‘representing the
16 voting districts of the association. Unlike most of the associ-
ations formed on a similar plan, no provision is made for the
appointment of public directors. The membership of approxi-
mately 4,000 is located in about 50 of the 54 counties of the State
in which the Farmers’ Union has members , the area of most concen-
tration reported to be the section in the. vicinity of Fort Smith.
Headquarters are maintained at Little Rock.
Although the association is of the state-wide, centralized type
with a contract generally similar to the other associations of the
group, it does not operate in all respects according to the generally
accepted principles and policies of the group. It is not a member
of the American Cotton Growers’ Exchange and is not affiliated
in any way with other organizations, except the parent organiza-
tion. It was sponsored and or eanized solely by the Farmers’ “Union
during the same time that the State farm bureau was or ganizing the
Arkansas Cotton Growers’ Cooperative Association.
NORTH CAROLINA COTTON GROWERS’ COOPERATIVE ASSOCIATION
Representatives of the North Carolina branch of the American
Cotton Assoc 1ation and the organization committee of the proposed
Tobacco Growers’ Cooperative Association, held a joint meeting at
Raleigh, January 26, 1921, to perfect plans for organizing coopera-
tive marketing associations for cotton and tobacco. ‘The meeting
was attended ‘by several hundred growers, bankers, business men,
extension workers, and agricultural leaders, many of whom had
attended previous meetings at which the so-called commodity plan
of cooperative marketing had been discussed.
ST
——
a a
COOPERATIVE MARKETING OF COTTON 11
‘ At this joint meeting the plan and contract were approved and
t was agreed that separate organizations would be formed simul-
taneously, the organization committees for each of the two commodi-
ties cooperating in obtaining membership in those localities produc-
ing both cotton and tobacco. The organization committee for the
cotton association was named by the North Carolina division of
the American Cotton Association and consisted of 15 men. _
January 1, 1922 was the date fixed for the close of the sign-up
campaign, and the minimum number of bales was placed at 200,000,
on the basis of 1920 production. The work of soliciting members
began in March, and before September 1 the signed contracts ex-
N. C.COTTON GROWERS COOPERATIVE ASSOCIATION
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OPERATING ADDRESSOGRAPH
MEMBERSHIP CONTRACT FILES
SPECIAL DEPARTMENTAL FILES
SALES ALLOCATIONS TO POOLS
SALES JOURNAL
CLAIMS JOURNAL
SHIPPING INSTRUCTIONS
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Fie. 2.—The organization of the North Carolina Cotton Growers’ Cooperative Associa-
tion, showing the functions performed by the different operating departments
_ ceeded the established goal. By January 1 contracts had been
signed by 26,000 growers, representing 340,000 bales.
The association was incorporated in North Carolina February 8,
1922. Ten men were elected directors from the 10 voting districts
into which the State had been divided, and an eleventh director
was nominated by the governor of the State in accordance with
provisions in the association agreement for public representation
on the board. Five directors were named as’an executive committee.
Officers were elected, the various operating departments were or-
ganized, and offices were established at Raleigh. It began receiving
cotton September 15, 1922, (Fig. 2.)
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i2 BULLETIN 1392,-U. S. DEPARTMENT OF AGRICULTURE
ARKANSAS COTTON GROWERS’ COOPERATIVE ASSOCIATION
On January 17, 1921, delegates from county farm bureaus met at
Hope, Ark., for the purpose of forming the Arkansas Farm Bureau
Federation. At this meeting approval was given to the plan of
organizing a cooperative cotton-marketing association along the lines
of the one then in process of organization in Oklahoma. Later, the
executive committee of the newly formed State farm bureau called
a mass meeting of cotton growers at Little Rock, March 22, 1921,
at which the plan was formally adopted and an organization com-
mittee named.
The Arkansas Farm Bureau Federation sponsored the movement
and assumed the leadership in the organization campaign. Under
an arrangement somewhat similar to that previously adopted in
Texas, no membership fee was required from farm bureau members.
The minimum quantity of cotton to be obtained in the membership
campaign was placed at 200,000 bales, on the basis of 1920 produc-
tion, and the time limit specified in the marketing agreement was
January 1, 1922. The contracts signed by that date by 5,500 growers
represented 211,000 bales. The association was incorporated under
the Arkansas cooperative marketing act on February 25, 1922. Head-
quarters were established at Little Rock.
The board of directors consists of 23 men, 20 being elected by
the membership in the 20 established voting districts, and 3 being
appointed, one each by the governor of the State, the dean of the
college of agriculture, and the commissioner of the State depart-
ment of mines, manufactures, and agriculture.
Following the organization of similar associations in Tennessee
and Missouri in 1923, and in Illinois in 1924, the Arkansas associa-
tion entered into an agreement whereby it became the sales organiza-
tion, on an actual cost basis, of these three relatively small associa-
tions.
SOUTH CAROLINA COTTON GROWERS’ COOPERATIVE ASSOCIATION
A number of regional meetings were held in South Carolina in
April, 1921, for the purpose of discussing cooperative marketing
and of interesting farmers in the organization activities in other
cotton-producing States. At these meetings, which were called by
the director of the Agricultural Extension Service of Clemson
College and the South Carolina division of the American Cotton
Association, delegates were named to represent respective sections
of the State at the semiannual meeting of the South Carolina divi-
sion of the American Cotton Association at Columbia, May 3, 1921.
The association agreement and marketing contract were indorsed
at the Columbia meeting. An organization committee of 21, the
members of which had been named at the regional meetings, directed
the membership campaign. The campaign began on July 19 in
Marion and Spartanburg Counties, under the leadership of the
agricultural extension service and the State division of the American
Cotton Association. It continued until May 1, 1922, at which
time 9,981 growers had-signed contracts representing 415,871 bales,
or more than the established minimum of 400,000 bales on the basis
of 1920 production,
sinc va Maina
COOPERATIVE MARKETING OF COTTON 13
_ The association was incorporated in South Carolina on June 16,
1922. On the same day directors were elected from each of the 10
established voting districts. An eleventh director was named by
the governor of the State. Headquarters were established at
' Columbia.
GEORGIA COTTON GROWERS’ COOPERATIVE ASSOCIATION
The State bureau of markets was largely responsible for the
movement to organize the cotton growers of Georgia. At a mass
meeting at the State capital in April, 1921, the plan was submitted
and an organization committee named, with the chairman having
authority to increase the personnel of the committee. The organiza-
tion campaign began in April, with January 1, 1922, as the time
limit, and 300,000 bales the minimum to be obtained.
The early campaign failed to arouse the interest necessary for its
successful culmination. Finally, the members of the committee
resigned, with the exception of the chairman, who named a new
committee of 17 members. The time limit was extended to April 1,
1922, and the minimum required was reduced to 200,000 bales. The
second campaign, which began in January, 1922, was vigorously
conducted and when it closed at the stated time 12,500 growers
had signed contracts representing 240,000 bales.
| The association was incorporated in Georgia on June 27, 1922.
The State had been divided into 20 districts, and representatives
from each of these districts, together with three public directors, com-
posed the board of directors. The public directors are named, one
each by the commissioner of agriculture, the director of the State
bureau of markets, and the president of the State college of agri-
culture. Headquarters are maintained in Atlanta.
ALABAMA FARM BUREAU COTTON ASSOCIATION
The director of the extension service of the Alabama Polytechnic
Institute called a meeting at Auburn in January, 1921, which was
_ the beginning of the farm bureau movement in the State. The
cotton association, which was planned from the beginning of the
movement, was the direct culmination of numerous conferences and
meetings held from time to time during its organization.
The farm bureau sponsored the plan to organize a state-wide
association and named a committee of 25 at a meeting in Mont-
gomery in February, 1922. The sign-up campaign began in April
and ended June 17 with 11,380 contracts, representing 169,000
bales. The minimum to be obtained was 100,000 bales. No mem-
bership fee was charged farm bureau members.
The association was incorporated in Alabama July 1, 1922, and
began receiving cotton in August. A primary election had been held
June 14, and the general election of directors on June 26. The per-
sonnel of the board of directors consists of elected representatives
from 14 voting districts and 2 public directors nominated by the
president of the Alabama Polytechnic Institute. Headquarters are
maintained at Montgomery.
ik:
14 BULLETIN 1392, U. 8. DEPARTMENT OF AGRICULTURE
LOUISIANA FARM BUREAU COTTON GROWERS’ COOPERATIVE ASSOCIATION
The Louisiana association was organized under the leadership of
the State farm bureau federation. The organization committee of 33
was named by the farm bureau in May, 1922. Although some con-
tracts were signed as early as July, the intensive sign-up campaign
did not begin until October. When it ended on January 1, 1923, the
5,230 contracts obtained represented 83,500 bales, on the basis of 1922
production. The minimum necessary for the contracts to be binding
had been fixed at 75,000 bales. Members of the farm bureau were
exempted from the payment of membership fees. Organizations
assisting in the campaign included also the American Farm Bureau
Federation, the State extension service, and Louisiana State
University.
The association was incorporated in Louisiana on February 24,
1923. Directors were elected from the 15 established districts, and
the Governor of Louisiana, the dean of the college of agriculture,
and the State commissioner of agriculture each named an additional
director. The main office was established at Shreveport. In June,
1924, the sales and classing offices were moved to New Orleans.
MISSISSIPPI FARM BUREAU COTTON ASSOCIATION
The cotton-marketing association organized in Mississippi under
the direction of the State farm bureau federation covers the so-
called hill section of the State, as the Staple Cotton Cooperative
Association covers the delta section. Agitation for its organization
had begun in the spring of 1922, when the farm bureau was organ-
ized. The extension service of the agricultural and mechanical
college and the chambers of commerce in the State were active in
aiding the movement.
An organization committee of 16 was named by the farm bureau
at a meeting in Jackson, May 8, 1922. The membership campaign
began October 15 and ended on December 23. Contracts signed
numbered 11,773, representing 108,639 bales, or 8,639 more than the
required minimum. )
The association was incorporated under Mississippi laws on March
30, 1923. The board of directors had been elected and met for the
first time on February 13. Ten members of the board represented
the 10 districts of the association and the eleventh director had been
named by the president of the agricultural and mechanical col-
lege. The main office was established at Jackson.
TENNESSEE COTTON GROWERS’ ASSOCIATION
Agitation for a cotton-marketing association in Tennessee be-
gan in the spring of 1922, and culminated in a meeting at Jackson
in December, called by the extension service of the college of agricul-
ture. An organization committee of 20 members was selected at
this meeting. :
The membership campaign began January 1, 1923, and ended
April 15. Contracts were obtained from 6,000 growers in 26 counties,
representing approximately 70,000 bales of cotton on the basis of
1922 production, move than the 60,000 bales established as a mini-
asennad
|
COOPERATIVE MARKETING OF COTTON 15
mum. The association assumed the expense of organization under
an arrangement whereby the Tennessee Farm Bureau Federation
agreed to refund $10,000 of the amount expended before the expira-
tion of the five-year contract. Money to defray immediately the
organization expense was borrowed by the association from a Mem-
phis bank, from several county farm bureaus, and from individuals.
The association was incorporated in Tennessee June 4, 1923. The
board of directors was formed by the election of 10 men representing
the 10 voting districts, and 1 public director selected by the presi-
dent of the University of Tennessee and the State commissioner of
agriculture. The main office was established at Memphis. Arrange-
ments were made with the Arkansas Cotton Growers’ Cooperative
Association for the handling of its cotton, including pooling, financ-
ing, selling, and clerical work, on a cost basis.
Beginning with the 1925-26 season the Tennessee Cotton Growers’
Association plans to have its own operating departments, with the
exception of sales. In selling it will use exclusively the sales service
of the American Cotton Growers’ Exchange.
MISSOURI COTTON GROWERS’ COOPERATIVE ASSOCIATION
The farm bureau organization in Missouri sponsored the move-
ment which led to the formation of the Missouri Cotton Growers’
Cooperative Association.
The membership campaign began February 1, 1923, under the
direction of an organization committee of 11 men who had been
named at a state-wide convention of cotton growers. It closed May
15, 1923, with 470 contracts signed, representing 12,121 bales on the
basis of the 1923 crop, or some 2,000 bales more than the 10,000-bale
minimum which had been agreed upon.
The association was incorporated in Missouri, July 11, 1923. 2 en ees:
¢ SS SS one
18 BULLETIN 1392--U. S. DEPARTMENT OF AGRICULTURE
The exchange 1s a nonstock, nonprofit, unincorporated association.
It has neither constitution nor by-laws, the agreement drawn up and
entered into by the member organizations being the only official
document authorizing its existence and explaining its relationship
to the member associations. ‘The cost of maintaining it is prorated
among the member associations on the basis of the gross proceeds
from the sale of cotton delivered each season, regardless of whether
the cotton is actually sold by the associations’ own sales department
or by the general sales office of the exchange. ‘This cost has amounted
annually to approximately 30 cents per bale.
The exchange is governed by a board of trustees consisting of three
members from each State association. ‘They are chosen annually,
and meet several times during the year. Immediate direction of its
operations is delegated to an executive committee, composed of one
man from each member association, usually the president or general
manager. ‘This committee ordinarily meets once a month. The |
officers are a president, a vice president, a secretary-treasurer, and
general manager. Headquarters were first established at Dallas,
Tex., with the general sales office at Atlanta, but in July, 1924, the
two offices were consolidated and moved to Memphis, Tenn. Figure
3 shows the plan of organization and control.
At the time the exchange was formed it was contemplated that 12
departments would be organized, as follows: (1) Executive and
administrative, (2) office management, (83) grading and standardiz-
ing, (4) warehousing, (5) insurance, (6) transportation, (7) finance,
(8) statistics, (9) sales of ordinary cotton, domestic and foreign,
(10) sales of staple cotton, domestic and foreign, (11) legal, and
(12) field service. Two departments were organized, and they func-
tioned the first year—the legal and the field service. Departments
now organized and functioning are legal, sales, systems, traffic, and
field service and public relations. Some of its activities are handled
by committees, such as the finance committee, which made arrange-
ments in one instance for a line of credit with eastern bankers for
loans to member organizations of $100,000,000.
In addition to its general sales office at Memphis, the exchange
maintains its own selling offices at Boston, Fall River, New Bed-
ford, and Providence, in New England; Charlotte, Greensboro, and
Greenville, in the Carolinas; and at Barcelona, Spain; Bremen,
Germany; Havre, France; Liverpool, England; and Kobe, Japan.
It has brokerage connections in other important markets. It does not
practice pooling, but sells on individual account for each member
association, to which it furnishes as a part of its service statistical
information and advice on cotton-market conditions. Although each
association has its own sales department and several of them have
their individual sales offices and representatives in domestic market
centers, the general sales office supplements their individual activities
in domestic markets and handles a large part of the export sales.
Figure 4 shows a shipment of type samples to its foreign offices.
In the several years of its operations the exchange has sold over
one-fourth of the cotton handled by its member associations. In the
1922-23 season it sold 140,748 bales; in 1923-24, 257,713 bales; and
in 1924-25, 315,058? bales. Of this quantity about one-half was
2To June 25, 1925,
a
COOPERATIVE MARKETING OF COTTON 19
sold through domestic offices, and about one-half through foreign
sales offices. Of the domestic sales approximately one- third of the
cotton went to New England, and approximately two-thirds to
southern mill markets. In the Carolinas sales to mills are made
largely through exchange salesmen, whereas in other domestic spin-
ners’ markets sales are principally to merchants.
The advisability of all member associations selling their cotton
exclusively through the exchange has been under consideration at
different times. There are arguments for and against such a pro-
posal. Undoubtedly the concentration of sales activity in one central
agency would result in a reduction in selling expense and in the
elimination of competition between associations. On the other hand,
a certain amount of intelligent competition is often conducive to a
healthy condition in cooperative organizations. There are certain
Fic. 4.—A shipment of types fromy a member association to foreign representatives of the
American Cotton Growers’ Exchange
dangers in. overcentralization, particularly in farmers’ cooperative
enterprises, that may more than offset the advantages. If the ex-
change can sell cotton to a better advantage than ‘the State asso-
ciation, other things being equal, its superior service should even-
tually bring about “greater concentration and less expense in selling
without further centralization of control.
Under the present plan of organization the exchange is success-
fully carrying out the purpose for which it was created, that of a
national overhead organization operating as a service and coordinat-
ing agency by and for the state-wide or regional associations organ-
ized ona uniform plan. In its first two years it assisted the organiz-
ing States, particularly Arkansas, Georgia, Alabama, Mississippi,
and Tennessee, by furnishing plans, advice, experienced organizers,
and speakers for campaigns. Its several functioning departments
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20 BULLETIN 1392,.U. S, DEPARTMENT OF AGRICULTURE
have contributed much to standardizing and increasing the efficiency
of operating units in the several associations. Some of its most im-
portant work has been of an intangible nature, but not less valuable
because of inability to measure it accurately in dollars and cents.
All of the group of cooperatives shown in Table 1, page 1, with
the exception of the Staple Cotton Cooperative Association and the
Farmers’ Union association in Arkansas, are members of the ex-
change, each becoming a member immediately after organization by
ratification of the original agreement.* In the 1924-25 season the
member associations had over 275,000 grower members and handled
almost 1,000,000 bales of cotton.
PRINCIPLES AND POLICIES
THE ASSOCIATION AGREEMENT
During the organization of each association cotton growers were
asked to sign both an association agreement and a marketing con-
tract. In some States these were separate documents, and in others
both were included in the same document, but under their respective
headings. | aay
The agreement described the proposed association, its purposes,
principles, the plan of organization, the plan of operation, requisites
for membership, etc. In other words, it was an agreement setting
forth the facts and conditions under which the growers became
members and under which their signatures became binding. One of
the conditions was that a certain minimum number of bales would
be under contract by a definitely named date. In the event that con-
tracts signed on or before the date specified did not equal or exceed
this minimum, based on the previous production of the signers, the
signatures would not be binding. If, however, the minimum number
of bales should be obtained within the time limit, as determined by
the organization committee, it provided that the “agreement shall
be binding upon all the subscribers in all its terms when so secured,
and there shall be no right of withdrawal whatsoever.”
THE CONTRACT
A uniform contract, called “the marketing agreement,” describes
in considerable detail the obligations of the contracting parties, their
rights and privileges, and the general procedure agreed upon in car-
rying out its terms. It was designed to assure a definite volume of
business, to provide a basis for financing, to prevent disruption
caused by the desertion of disloyal members, and to give stability
and permanency to the organization.
The contract is between the individual member and the associa-
tion, with the understanding that each individual contract “is one
of a series generally similar in terms, comprising with all such
agreements, signed by individual growers, or otherwise, one single |
contract between the association and the said growers, mutually and —
individually obligated under all the terms thereof.” It specifically
transfers title in a purchase-and-sale clause and provides for deliv-
®The Illinois association is not directly represented on the board of trustees of the
exchange, but is indirectly connected with the exchange through its marketing agreement
with the Arkansas association,
4
|
COOPERATIVE MARKETING OF COTTON oA
ery by the member of all cotton produced or acquired by him during
_the years specified therein. In the event of nondelivery it provides
for the payment of liquidated damages, the amount being $10 per
bale in the Arkansas Farmers’ Union association, 10 cents per pound
in the Staple Cotton Cooperative Association,* 5 cents for short-
staple upland and 10 cents for long-staple Pima in the Arizona
association, 3 cents per pound in the Georgia association, and 5 cents
per pound in all others. It also specifies that the association is
entitled to an injunction to prevent breach of contract, and to a
decree of specific performance to compel delivery. Its validity has
been generally established by the courts of the several States.
Apparently it is all that is implied in the commonly used terms
“ironclad,” “ water-tight,” and “legally binding.”
The first series of contracts are in every case long-term contracts.
In the Oklahoma association seven years was the period specified;
in all others five years. As these contracts, which are all noncan-
cellable, expire, it is expected that each of the associations belonging
to the American Cotton Growers’ Exchange will adopt as its second
series a contract generally similar in terms and for a five-year
period. Such a contract has been adopted recently by the Texas
Farm Bureau Cotton Association, which began its second campaign
in March, 1925, to obtain members for the years 1926 to 1930, in-
clusive.
The renewal marketing agreement adopted by the Staple Cotton
Cooperative Association, effective for the years 1925 to 1930, does
not follow the original contract in-a number of its major provisions.
Among other fundamental changes it permits members to withdraw
in any year upon their written notice to the association prior to the
second Wednesday in May.
Students of cooperative marketing are generally agreed that con-
tracts between members and their associations are desirable and, in
most instances, essential to success. This is particularly true in large
associations of the centralized type and during the period of time
necessary to demonstrate their economic benefits. However, there
is a difference of opinion regarding the provisions and the use of
contracts. Many believe that a long-term contract, even longer than
five years, is desirable; but that such contracts should have a clause
permitting withdrawal at certain periods at the option of the mem-
ber. Results obtained by the Staple Cotton Cooperative Association
under its renewal marketing agreement, and by the several Cali-
fornia organizations that have recently incorporated the withdrawal
feature in their contracts, when compared with those operating with
a noncancellable agreement, should provide in time a valuable ex-
perience upon which to base future contracts in centralized coopera-
tives.
The fact that there is so much discussion regarding marketing
contracts is partly because the intensive use of such contracts is a
relatively new development in cooperative marketing. Also, too
much emphasis has been placed on its efficacy as a legal weapon to
enforce delivery. With a growing recognition of the weakness in
any scheme or attempt to operate a cooperative organization on a
4This is reduced to 5 cents per pound in the renewal marketing agreement, effective
for the years 1925 to 1930.
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29 BULLETIN 1392, U. S. DEPARTMENT OF AGRICULTURE
legalistic basis, emphasis no doubt will be placed properly on the
contract as a business instrument essential in the conduct of business
activities and not as a legal substitute for service in maintaining
membership loyalty.
THE MEMBERSHIP
The Staple Cotton Cooperative Association limits its membership
to the delta area of Mississippi, Arkansas, and Tennessee. The
Arkansas Farmers’ Union association restricts membership to
Farmers’ Union members. In all other associations of the group
the territorial limitations are the State boundaries and any growers
therein may join.
In its first sign-up campaign the Staple association had a member-
ship fee of 25 cents per bale, with a $10 minimum. The Farmers’
Union association and the North Carolina association adopted a
membership fee of $3; the South Carolina and Georgia associations,
$5; and the others $10. In both North Carolina and Georgia the fee
was later changed to $10. In its renewal contracts the Texas asso-
ciation requires no membership fee from present members, and the
Staple Cotton Cooperative Association has entirely eliminated it.
In all associations membership is limited to cotton growers, “ in-
cluding the landlord or tenant or lessor or lessee of land on which
cotton is grown, provided the landlord or lessor receives all or part
of the rental in cotton.” By thus limiting membership to producers
and by eliminating nonmember business, a certain unity of interest
is assured that is impossible to attain in cooperative marketing asso-
ciations which include as members, growers, dealers, and others hay-
ing varied interests in the commodity or the industry. Many asso-
ciations of the latter type have been wrecked as a result of the con-
flicting interests of the members and by control becoming concen-
trated in the hands of individuals not primarily producers. A1-
though there is nothing in the agreements of the cotton cooperatives
that excludes buyers and merchants, provided they are also growers,
they are in the minority and can not as a minority group control
the associations under the present voting plan.
DEMOCRATIC CONTROL
The territory covered by each association is divided into districts,
the number varying from 6 to 20 in the several associations. These
are primarily voting districts, and are therefore made approxi-
mately equal on the basis of estimated production rather than geo-
graphical area. In accordance with the by-laws, redistricting oc-
curs from time to time in order to maintain a fair and equitable
representation of the total membership.
Prior to the annual election of directors the members in each
county hold a primary election, at which they select one delegate
for each 1,000 bales of cotton or majority fraction thereof, delivered
by the county membership during the preceding season. ‘The county
delegates in turn attend a district meeting and select two members
as nominees for director from the district. A district election is
then held, and one of the nominees is elected, the members voting
in person or by mail. Rules and regulations for the conduct of pri-
mary and other elections are determined by the existing boards of
directors.
~~
COOPERATIVE MARKETING OF COTTON 293
Voting power is exercised by the individual members in the an-
nual election of a board of directors. Each member has one vote
and only one, regardless of the quantity of cotton produced. The
operation of this one- man, one-vote principle prevents concentration
of voting power in a group of large producers. It assures demo-
cratic control of the organization ‘to the same extent and in the
same manner that prevails in county, State, and National Govern-
ments.
MANAGEMENT
The control and management of each association is delegated to
the board of directors, elected annually by the membership. The
board has regular and special meetings, the members usually serving
without salary but receiving reimbursement for traveling expenses
and $10 per day for the time covered by attendance at meetings and
in traveling thereto and therefrom. Each association, with the ex-
ception of the Arkansas Farmers’ Union association, provides in its
by-laws for the nomination, selection, or appointment of one or more
public directors to represent and protect the interest of the general
public. These directors, who need not be members or growers, have
full authority as directors. They are usually named by State offi-
cials or the heads of educational institutions. They hold office for
one year.
The directors of each association appoint an executive committee,
to which it delegates certain powers and activities in the immediate
@irection of the association’s business. The number of executive
committeemen varies from three to five in the different associations.
They meet more frequently than the directors, and may or may not,
as determined by the directors, receive compensation in addition to
their expenses and a per diem allowance. Usually, like the direc-
tors, they receive only actual expenses and $10 per day when attend-
ing meetings.
The officers elected or appointed by the board of directors are
usually a president, vice president, secretary, and treasurer. In
some associations assistant secretaries are appointed, and in some
the same individual serves as both secretary and treasurer. The by-
laws describe the powers and duties of the officers, which in the
main are the powers and duties ordinarily belonging to such posi-
tions in other cooperative and noncooperative business organiza-
tions.
The operatine departments or divisions are usually designated by
such terms as sales, finance, accounting and general ‘office, ‘legal and
field service. Each is in charge of an experienced man. T he execu-
tive head of the organization is a general manager, who in some
instances, is also the “president. In selecting these men the directors
endeavor to get the best ability obtainable, in accordance with the
avowed policy of employing experts to conduct their business. Un-
lke farmer organizations of earlier days, they were, in the begin-
ning, inclined to pay unusually high rather than ver y low salaries.
In many cases this was necessary “because of the uncertain future
of the new enterprise. Many adjustments have been made and at
the present time salaries paid are more comparable with those for
like services in noncooperative business organizations. In general,
the policy of employing high-grade men at salaries commensurate
with their ability has been justified by results.
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24. BULLETIN 1392, U. S. DEPARTMENT OF AGRICULTURE
ORGANIZATION BY COMMODITY
In the plan of organization adopted by the cotton growers it is a
fundamental principle that the basis of organization is a single
commodity or a group of related commodities. Separate associa-
tions are formed for cotton, tobacco, rice, peanuts, etc., rather than
one association for a group of commodities produced in the same
general locality. With this principle as a basis the plan contem-
plates control of the marketing of all or a large part of the par-
ticular commodity, with only minor regard to the communities in
which it is produced. Although separate cotton associations were
formed in each State; this recognition of State boundaries was a
matter of expediency rather than of principle. The purpose was
the organization of the commodity—cotton—rather than the organi-
zation of producers living in well-defined geographical areas.
The phrase “commodity marketing,” in the restricted sense in
which it is commonly used by leaders in the cotton, tobacco, and
other associations formed on a similar plan, is associated with the
idea of “commodity control.” Centralization of control in the
marketing of all or a large part of the commodity rather than the
handling of a single commodity is the distinguishing feature of this
type of organization. The term “commodity marketing” is mis-
leading, inasmuch as the majority of the cooperative associations in.
the United States, whether locals, centralized associations, or federa-
tions, handle only one commodity or a group of related commodities.
Without an understanding of the peculiar sense in which the phrase
“ organization by commodity ” is used, it is valueless in differentiat-
ing between the centralized associations and those of the federated
type, in which control is vested in the local units.
LARGE-SCALE ORGANIZATION
Most, if not all, of the cooperatives formed in recent years on the
centralized plan provided as a prerequisite to organization that the
contracts with growers represent a definite volume of business.
Many provided for organization only in the event that the contracts
assured control of the major portion of the total crop or of that
produced in a specified area. One tobacco association placed its
minimum at 50 per cent of the acreage, another at 6624 per cent,
and another at 75 per cent. Control of a much larger percentage of
production has been obtained by a number of associations handling
perishable or semiperishable crops.
The idea that monopoly control is vital to the success of a central-
ized cooperative marketing association is not generally accepted at
the present time by leaders in the movement, or, at most, it is not as
deep-rooted as in earlier years. Many consider it advisable but not
essential. In insisting upon large-scale organization as a principle
the intention is, primarily, to obtain a volume of business sufficient
to provide expert management and necessary facilities, to assure
efficient operation at the lowest possible per unit cost, and to make
possible an effective “ merchandising ” program.
In the organization of the cotton associations each State organiza-
tion committee fixed a definite number of bales rather than a definite
and uniform percentage of the crop as its minimum requirement.
In most instances this amounted to 20 to 30 per cent of the produc-
tion of the State. This relatively small volume upon which actual
:
COOPERATIVE MARKETING OF COTTON 25
organization was conditioned was probably deemed necessary be-
cause of the wide area of production; the economic condition under
which the crop is produced, particularly the credit system; and the
general conditions prevailing in the cotton industry. The quantity
of cotton delivered to each association has been much less than was
estimated during the organization period, with the result that the
associations are actually handling only about 10 per cent of the
American crop. In doing this, however, they have demonstrated
that control of a major portion ‘of the crop is not essential to their
operation. At the same time a larger proportion of the crop should
enable them to lower their operating cost and facilitate their mer-
chandising program. (See Table 2.)
Some of the associations had relatively high per-bale costs in their
first years, largely as a result of receiving less cotton than was antici-
pated. Asa rule, increasing volume from year to year, other things
being equal, has enabled them to reduce materially the per- -bale
costs of operation. In the case of some of the larger associations it
is doubtful if further increases in volume will result in material de-
creases in marketing costs per bale. This does not mean that further
increases are of doubtful advantage, but that additional reductions
in cost are likely to be relatively small.
TABLE 2.—Annual and total receipts of 15 cooperative cotton-marketing asso-
citations, 1921-22 to 1924-25*
!
Receipts each season
Association ; Total
receipts
1921-22 1922-23 | 1923-24 | 1924-25 2
Pra ee
Bales Bales Bales | Bales Bales
Oklahoma Cotton Growers’ Association _______-_---- 91, 239 65, 868 | 118,743 | 141,440 417, 290
Staple Cotton Cooperative Association ___...-------- | 156,026 | 168,021 | 107,432 | 124, 544 556, 023
Arizona Pima Cotton Growers____-_______-_-_-____- 10, 676 10, 375 7, 948 9, 748 38, 747
Texas Farm Bureau Cotton Association_____________ 93, 472 77, 706 182) 318 | 284,321 637, 817
5 Farmers’ Union Cotton Growers’ Associa-
a a ee oe se 400 3, 547 3, 341 3, 846 11, 134 .
Noth Carolina Cotton Growers’ Cooperative Asso- |
coe Te oe ee ee te ee ES seeeen | 135,912 | 130,865 | 116,273 383, 050
Arkansas Cotton Growers’ Cooperative Association._|_._._____- 68, 492 37, 786 40, 361 146, 639
South Carolina Cotton Growers’ Cooperative Asso-
EEE 24 4 1k Se a Ca See ee tees eee eee 121,927 | 121,215 99, 325 342, 467
Georgia Cotton Growers’ Cooperative Association___|-.--------| 55, 206 70,812 } 105, 977 231, 995
Alabama Farm Bureau Cotton Association____-_-_-.|..-------- 57, 410 65, 319 79, 388 202, 117
Louisiana Farm Bureau Cotton Growers’ Coopera-
Ee Tae AT eS Be Pe ee eee COR ee eEs Pe eeee eres Pojoets | 29, 890 6, 535 36, 425
Mississippi Farm Bureau Cotton Association________|---------- Sees Fae | 33, 858 44, 042 77, 900
Tennessee Cotton Growers’ Association_____________|_. _------ lle a= Se es | 15,316 18,141} 33,457
Missouri Cotton Growers’Cooperative Association___|----------|---------- | 3, 7 2,051 | 5, 759
Illinois Cotton Growers’ Cooperative Association 108 108
1,076,100 | 3, 120, 928
i
'
1 Figures obtained in most instances from the American Cotton Growers’ Exchange.
2 As of May 1 for some associations and therefore subject to slight revision.
5 kta ee eee 351,813 | 764, 464 | 928, 551
There is, undoubtedly, for each association a certain limit or least-
cost combination of factors which make for efficient operation and
which cannot be determined accurately in advance. It is improb-
able that increases in volume will result in a degree of control suf-
ficient to cause the elimination of large, efficiently operating cotton
merchants. It is questionable if this degree of control would be
desirable even if it were possible. In all “probability, however, the
associations can increase their volume to a large extent before
reaching that point in large-scale business where net gains diminish
until they are offset by inevitable losses incident to overexpansion.
2 ERS SESS SE
x A Sow SS oS eS
Se. eee eee -
SS
Pe
TET
Ee Oe eee
2 Se = SS = ae
SS SSeS EnSeEeseneeeeeeeeaeeaeeeeeeel
ae
2°26 BULLETIN 1392, U. 8. DEPARTMENT OF AGRICULTURE
NONSTOCK, NONPROFIT FORM
All of the associations are organized on the nonstock, nonprofit
plan—a plan that many consider truly cooperative and peculiarly
effective in maintaining unity of interest and producer control.
Other factors influencing the adoption of this form were (1) legal
expediency, and (2) the ‘necessity of using a plan that would facili-
tate rapid and large-scale organization.
Under this plan of organization, which meets the requirements of
section 6 of the Clayton “Act, the Capper- Volstead Act, the uniform
cooperative-marketing act that is now in effect in whole or in part
in 87 States, and other State acts legalizing such associations, cot-
ton growers who join the associations receive nontransferable mem-
bership certificates. ach member has one vote. There is no stock
on which to base voting power, or on which to pay dividends, and
there are no profits to distribute. Operations are, therefore, con-
fined in purpose to rendering service and effecting savings for
members.
Each member receives the average sale price of his pooled cotton
less freight, insurance, interest, and deductions to cover his pro rata
share of other marketing and overhead costs, including deductions
for reserves.
RESERVES
The primary purpose in creating and maintaining a reserve is to
provide financial stability, and to have funds available for meeting
losses or for other direct or collateral requirements. Not only is
it advisable to have such a fund available in a nonstock organiza-
tion in the event of impaired price levels or other adverse conditions
beyond control of the organization, but also to assure the payment
of claims arising in its ordinary business transactions. The mill
trade desires to buy cotton from merchants or shippers who have
large assets, or at least sufficient assets to cover all reasonable claims
for refunds. The existence or nonexistence of such a fund also
affects the credit standing of an organization with financial insti-
tutions and agencies.
The associations provide for reserves by authorizing the deduc-
tion of a certain percentage of the gross proceeds from “sales of cot-
ton each season. The maximum amounts that may be retained for
‘this purpose by the different associations in any season range from
1 to 5 per cent, with 2 per cent the limit in most cases. Inasmuch
as it has been the policy to make net returns to members as large
as possible, the actual deductions have ranged from 0.5 to 2 per cent,
with 1 per cent the amount retained by 10 associations. ‘The North
Carolina and Mississippi Delta associations issue interest-bearing
certificates to members for the amounts deducted. The others do
not issue certificates, although a few pay interest at the end of each
year at the rate of 6 per cent per annum.
The associations have title to the reserves, and the use made
thereof is controlled by the boards of digectors, Members have an
equity in the reserve, in the event it is distributed, in proportion
to the amounts deducted from their accounts; but directors control
the time and conditions of distribution. The Staple Cotton Co-
operative Association provides in its new contract for the im-
mediate retirement of all advance fund certificates issued to mem-
COOPERATIVE MARKETING OF COTTON oF
bers during its first two years, amounting with interest to $860,000,
and for placing its advance fund on a revolving basis. Some of
the other associations are considering also the plan of maintaining
their reserves on a revolving basis rather than of holding the ac-
cumulated amounts during the life of the organization.
In its four years of operation the Staple Cotton Cooperative Asso-
ciation has accumulated reserves of over $1,800,000, made up of
$1,552,258 in its so-called advance fund and $270,144 in a contingent
fund. At the close of the 1923-24 season the Texas association had
reserves amounting to $487,614; the Oklahoma association about
$219,200; and the Georgia association $177,253. Although the
amounts are not yetas largeas are desirable in most associations, they
have been of decided value in financing operations and in strengthen-
ing the positions of the associations with the trade and with credit
organizations.
ORDERLY MARKETING
The principle adopted by the cotton cooperatives in distributing
their sales more or less evenly throughout the year rather than in
concentrating them in the fall months has been called “orderly
marketing” by them. Through adherence to this principle it is the
purpose of the associations to (1) reduce the volume of early selling
and thereby eliminate or minimize any unsatisfactory results of the
practice known as “dumping,” (2) stabilize prices by selling at such
times and in such quantities as cotton is needed in consumptive
channels, and (3) obtain a price for their members which will
be approximately the average price for the year.
It is generally known that cotton farmers, acting individually,
market the bulk of their crop in a short period of time. Based on
a 10-year average, 1912-1922, it is estimated that they sell 12.8 per
cent of the crop in September; 21.2 per cent in October; 19.4 per
cent in November; and 14.2 per cent in December; or a total of 67.6
per cent of the crop in four months. This concentration of sales
between September and December, inclusive, has been made neces-
sary to a considerable extent by the growers’ financial obligations.
Sales of “distress” cotton are made regardless of the fact that the
supply offered is in excess of immediate mill requirements and re-
gardless of prevailing prices.
American mills buy throughout the year, but their heaviest buying
occurs from September to January. A number of large mills pur-
chase half of their supply in the harvest months, and some purchase
their entire supply at this time. Although a few mills may buy for
immediate delivery, as a rule they do not carry a large quantity of
cotton on hand, but purchase “on call” for shipment in designated
months.
Sales by farmers of a larger quantity of cotton than is desired in
consumptive channels means that purchasers of the excess must
assume the carrying risks and expense. The cost of the service ren-
dered by the trade is necessarily a factor in the price. Storing and
holding cotton does not necessarily result in profits, but there are
always definite costs. The cooperative associations in their market-
ing program assume as producers the expense and risks which have
been assumed by the trade under other methods.
\
t
i
b
SSS
28 BULLETIN 1392, U. 8. DEPARTMENT OF AGRICULTURE
Orderly marketing in practice must result in the supply more
frequently meeting the demand in both time and quantity. Al-
though the mills use cotton over a period of 12 months, there is con-
siderable variation in the quantity used in different months and in
different years. Mill takings vary with changing conditions. There
is no regularity, therefore, as regards the quantity of cotton required
or the time it is required. Because demand is not orderly, in the
sense that fixed quantities of cotton are required at definite intervals,
a program of orderly marketing that contemplates sales of cotton
in equal and fixed quantities each month would not be orderly. The
associations recognize this fact and instead of selling arbitrarily
fixed quantities by months, as the general public seems to think, they
study supply and demand conditions and endeavor to keep the
demand satisfied. In practice, they try to sell cotton at such times
and in such quantities, as in their opinion, is to the best interests of
their members, keeping in mind such a distribution of sales as will
enable them to obtain approximately the season’s average price.
As an example of the actual practice in distributing sales, Table
3 shows the semimonthly sales of the Texas association for the
1922-23 and 1923-24 seasons. Sales of the 1922 crop were made in
12 months of a 13-month period, and instead of being equal in size
they ranged from 24 bales in August, 1922, to 19,135 bales in March.
Sales of the 1923 crop were spread over 14 months and ranged from
2,365 bales in February to 52,368 bales in November. In a period
of three years, 1921 to 1923, inclusive, a total of all sales by months
in the Staple Cotton Cooperative Association shows a range from
18,319 bales in July to 46.448 bales in October.
TABLE 3.—Sales by semimonthly periods, 1922-23 and 1923-24, Texas Farm
Bureau Cotton Association
1922-23 1923-24
Per Per
Date Bales pnt Date Bales cont
1922 1923
ate patel ty Erik ey Pt eer ali 24 O30 |\Tualy Sik ee 23-20 SA ee reese 1, 500 0.8
Sor ree ee SPE ae es TY 86 sl | ANOS Lb AR ais se eae el open 2, 800 1.5
S{e] 0185 C10 i an ee eR ee Rs 903 1) 2) | Aig. SAS Te pe SE ee eee 2, 800 15
GY Chr Hae 8 CSP Seb RIB Boek Om 5 1, 601 2) A Serer ln ee, 202 eee oe A isi = 8) 8, 232 4.5
sterile tre eee cr ae tee 1, 758 | 2; SNe pon SUMS Pees eee ee ee 1, 802 1.0
Now? dbsii iret, iieleiei bea 2, 360 8. Or |MOet Iba te = t. srtobrerie dee 2, 436 1.3
INOW OD ss eb ea eh ee eS Sn 4, 224 6. 4 |HOCi Be lee tae leet ee a eee 10, 250 5.6
Weep ALE Che Tit see tape he 4, 330 Bs GUGINOM ALD II Fee eee 22, 564 12. 4
Sew als © se. 4 2s aes PS 2, 675 SA PINO Vs SOS: ok Oe poe ae ,8 16. 4
Piece HAE Ss Re eR A , 3. 1
1923 (tDeG.iBle bo ste ee Se et eb 4
A v0 iy see a Sea er FS ee ee 7, 298 9. 4
Jame saree Lea ALS: BEOeerces 3, 801 4.9 1924
eps bbl: Sb ee te SS eee 523 offal ai es) ee ees 5S 2 eee 2, 929 1.6
MODS ac coe ee ee eee 4, 881 Bosal ame al 2c 322 oe eee eee 948 ~5
Mar bist gee, alee Peed 14, 077 1S dy | WOD wi biaL ate oa Ree Aico ee 415 BY:
DVS ee cde Lil ee Se kere Oe oe 5, 058 6: 5, Rep 20 besser eo oe ee eee 1, 950 dea
Ars Lot. Je sy ee AEE Pi eek re PEC EE IWlart Weer eerie. oe) cere ss PED 3, 749 pial
JNh Cyc 0S (1) ae ae ele BES Be Ta SR 1, 455 BR Ae as ee ee. eee 17, 203 9.4
Wray 15 25 Fie AULD AA ae 1, 815 23h Apr 16s eet) Sette Eee 23, 212 12-7
ING IBO 8 2 te: 5 RE Se Eee 6, 138 T/OU| GAY saOk aioe ee eee en Sa eae 3, 810 241,
TINO. AG oS oka a el eee 11, 976 15,4. Wie Lies oe ee See eee 5, 400 3.0
JuMesOs eo elses.” Sa ae 2, 20 2. Bil MiayiSlietie tee 2 Fok ee hee 2, 100 ny
7 UT 5 ee Bee one we Se ATW EP 515 ay Fae | v0 8 Ue a ee Re ere 8, 558 4.7
June sols. the Fo ete Eee 416 iB
Aires ees eS 13, 395 7.4
Soptro0 ke 2. Soke er cere te 9, 745 5.3
Total: rxi2) on ee: ee ae 77,706 | 100.0 PP Ntels 2 ee ee ae 182, 318 100. 0
COOPERATIVE MARKETING OF COTTON 29
A study of the distribution of sales by months by the several asso-
--clations indicate that, contrary to public opinion, they market a
rather large proportion of their receipts in the fall months. The
figures in Table 3 show that in the period from September to De-
cember, inclusive, the Texas association sold 23.1 per cent of its total
1922-23 sales, and 44.7 per cent in the 1923-24 season. In the 1922-23
season, during the same period, the Alabama association sold 19.2
per cent, the Arkansas association 27.9 per cent, and the Oklahoma
association 52.3 per cent. In the four years of its operation the
Staple Cotton Cooperative Association has sold on an average over
40 per cent of its cotton in the same period.
The amount of early selling by the cooperatives indicates that,
instead of holding cotton until after the so-called “ dumping” period,
they consider it advisable to dispose of a substantial part of their
receipts by the last of December. Although a number of factors
influence their sales policy, their action in selling in the fall suggests
that the actual effect of “dumping” is not as serious as it is gen-
erally presumed to be. According to popular belief, the rapid mar-
keting of the crop by farmers creates an excess over consumptive
demands and a congestion that results in a seriously depressed price.
If this is true, the plan of orderly marketing to relieve congestion
and prevent the attendant price slump, other things being equal,
should cause the associations to reduce the volume of their early
sales; if not true, their present practice may be desirable.
Without attempting in this discussion to measure the exact in-
fluence of rapid marketing, or “ dumping,” it can be stated that the
best figures available do not substantiate the common belief that a
serious price decline occurs simultaneously with heavy marketing in
the fall, and that there is an upswing when the movement ceases.
A study of seasonal and annual average prices of New York futures
and middling spots for the 20-year period, 1904-05 to 1923-24,
although showing some advantage in the annual average, does not
demonstrate the regularity and seriousness of an “autumnal dip.”
A study of the average prices received by farmers on the first of
each month since 1913-14 indicates no positive price advantage to
farmers who consistently hold their cotton until after December.
In order to carry out their orderly marketing program to the
extent of stabilizing the cotton market, the associations need to
control a much larger proportion of the crop. For price-making
purposes the supply may be said to include the current crop, the
carry-over from the preceding crop, and the anticipated size of the
next crop. Prices are based on world supply and demand. Inas-
much as the associations control only approximately 10 per cent of
the American crop, and propose to market this more or less evenly
within a period of 12 months, they are not in a position to exert a
materially stabilizing influence on the base price.
They have, however, been successful in carrying out their orderly
marketing program as far as their own membership is concerned,
(1) by reducing to some extent the volume of early selling by their
members, (2) by stabilizing the market for their members through
pooling and the intelligent distribution of sales, and (3) by obtain-
ing for their members the approximate average price of the year.
By operating annual pools and distributing sales throughout the
30 BULLETIN 1392, U. S. DEPARTMENT OF AGRICULTURE
year, they have eliminated for their members the possibility of loss
or gain from sales made at the bottom or top of the market. They
have smoothed out for their members the short-time fluctuations in
the price curve through these methods, thereby protecting the mem-
ber to much the same extent that the cotton merchant obtains pro-
tection by hedging in the futures market.
5
=— I
MERCHANDISING
ae
Orderly marketing relates especially to the quantity of cotton
sold and the time of sale. Merchandising, a term frequently used
interchangeably with orderly marketing, has a much broader mean-
| ing. Orderly marketing is, in fact, only one phase of merchandis-
i ing. Merchandising involves standardization of quality, preparation
i for marketing, advertising, the carrying of adequate stocks, elimina-
f tion of waste, equitable distribution based on comprehensive market
if information, expert salesmanship, and such operations and policies
|) as are effective in establishing and maintaining trade confidence.
| It relates to all operations carried on in connection with the dis-
{|| posal of the product. An effective merchandising policy, in con-
| nection with the cooperative marketing of cotton, may be defined
! as a plan of marketing designed to result in maximum returns to
the producer and a minimum expense to the consumer of raw cot-
ton, through the use of efficient methods and practices by which
cotton is made available in the quantity and condition desired and
at the time and place of greatest demand.
— es Oe
. POOLING
)
:
Growers frequently refer to their respective associations as
| “pools.” This is not an incorrect use of the term in the sense that
) they have aggregated their interests and property to further a
| joint undertaking. To obtain the economic benefits of collective
action they pool their interests by individually and collectively
transferring to their central association the control of the market-
ing of their cotton and the distribution of the returns therefrom.
In order to equalize these returns between members, the associa-
tion pools the cotton received according to grades and staples, re-
turning to each individual having cotton of a particular grade and
| staple his pro rata share of the average price received for the entire
| lot of which it is a part.
In general, each association maintains its own pools, apart and
distinct from like pools of other associations. The exception is the
arrangement previously described whereby the Arkansas Cotton
Growers’ Association handles the cotton of several smaller associa-
tions. All pools are for the cotton season, that is, the pools of 1924
cotton are effective for the entire 1924-25 season, or until they are
sold.
With two exceptions the associations adhere strictly to the prin-
ciple of handling all cotton on a pooling basis. The exceptions are
the Arkansas Farmers’ Union Cotton Growers’ Association and the
Staple Cotton Cooperative Association; the first selling a small
quantity of “ distress ” cotton for its members; the second provid-
SESS So SS.
SS SS SS
COOPERATIVE MARKETING OF COTTON 31
ing specifically for such sales in its renewal marketing agreement,
under certain conditions.
The number of pools in each association and the quantity of cot-
ton in each pool depends on the class of the cotton received. Varia-
tion in the number in different States and in different seasons 1s
caused by variation in the volume of deliveries, by the general
character of cotton production in the areas covered, and by seasonal
conditions under which different crops are produced. Under the
American classification for upland cotton, which is used by all asso-
ciations, it is possible to have approximately 400 pools, but it is not
probable that any one association will ever have all grades and
staple combinations in a single season. During the 1924-25 season,
for example, Oklahoma had 65 active pools; North Carolina, 96;
and Alabama, 46. One large association had 86 pools in the 1921-22
season; 56 in 1922-23; 76 in 1923-24; and 120 in 1924-25.
Under the present pooling plan the member whose cotton classes
“middling white 1-inch” receives the average price per pound ob-
tained during the entire season from all sales of middling white
1-inch cotton, less necessary deductions. He is assured the average
price obtained for cotton of that class, but there is no positive as-
surance that the price will reflect the true value of his cotton in
relation to the cotton in pools of a higher or lower class. In other
words, it is possible that cotton of a lower class may be sold under
market conditions that result in a higher price per pound than that
obtained for the middling white 1-inch pool. When this actually
occurs it tends to defeat one of the main purposes of cooperative
marketing, that of obtaining a premium for quality production.
As a result of four years’ experience in pooling cotton a pooling
feature is being worked out whereby one association, at least, ex-
pects to bring about a more accurate equalization of returns between
members, based on the actual value of the members’ cotton in rela-
tion to all other cotton of lower and higher class. The Texas asso-
ciation in its new contract, effective in 1926, proposes to make pay-
ments to members “ according to differentials as to grade and staple,
to be established conclusively by the association on the basis of
actual differentials in prices received throughout by the association
from the sales of each year’s crop.” It is expected that this plan,
known as the economic value differential method, will be adopted by
other associations when their present contracts expire.
LOCALS
In most of the cotton cooperatives both the association agree-
ment and the by-laws provide for the organization and mainte-
nance of informal local branches. Approximately 1,200 of these
were organized in Oklahoma during and immediately after the or-
ganization period of the association. A few continue to be active,
but most of them failed to function after rendering service in the
membership campaign. About 600 were organized in North Caro-
lina in connection with the association’s initial field-service pro-
gram. Four other associations use for similar purposes the com-
munity or county units of State farmers’ organizations, especially
the farm bureau. The remaining nine associations have no definite
system of established branches.
Se ae ae
32 BULLETIN 1392, U. S. DEPARTMENT OF AGRICULTURE
Although local branches are specifically provided for in the gen-
eral plan of organization, there is no unanimity of opinion among
the leaders of the movement regarding either their value or activi-
ties. In general, they have been described as informal advisory
groups organized to render local aid in obtaining contracts, to en-
courage deliveries, to disseminate information relative to associa-
tion affairs, to furnish statistical data, to maintain proper morale
in the membership, to promote better farm practices, and to bring
about general improvements in rural life. Officials of some cen-
tralized associations maintain that such locals are exceedingly valu-
able and that they are necessary to success. Others assert with
equal emphasis that they are a detriment, inasmuch as they not
only attempt to dictate association policies but use their regular
meetings to foster discontent and antagonism. These widely dif-
ferent views are the results of their respective experiences with
local “ contact ” organizations.
The organization and maintenance of “contact” locals is not a
widely accepted principle or a recognized feature of the cotton asso-
ciation, at least at the present time. They have not functioned as
the leaders anticipated, and the trend is definitely away from the
local branch and toward a general community organization. These
community organizations, which are being formed as a part of the
field-service activities of several associations, are not branches or
units. Membership is not limited to association members, or even
cotton growers, but includes all of the men, women, and children who
are interested in rural progress and community development. The
organizations are designed to serve as contact groups for the cotton
associations, although cooperative marketing is only one of their
many interests.
The underlying idea in the originally adopted plan to have in-
formal branches or locals of the cotton associations seems to have
been to obtain some of the advantages enjoyed by federations with-
out losing the control characteristic of centralized associations. In
federations like the California Fruit Growers’ Exchange the locals
own and operate packing plants, maintain their own pools, and in
other ways handle and control their own product. Unlike these
locals in associations of the federated type, those in the cotton co-
operatives have had social rather than business activities.
The problem in developing and maintaining effective locals of the
“contact ” type has been further complicated by the fact that mem-
bers in a given geographical area may include plantation owners,
small land owners, tenants, and croppers, both whites and negroes.
Their relationships are, for the most part, business relationships. or
the satisfaction of social desires each class in the given geographical
area may go outside that area and meet others of the same class
from other areas. These conditions are also factors to be reckoned
with in the more recently adopted plan of community organization,
in fact in any plan of rural grouping. i
In general, the attempt of centralized cooperatives to organize
their members in rural communities, largely on a geographical basis,
as social (nonbusiness) locals or branches of business organizations,
has not been satisfactory. Experience, however, is developing a
better understanding of the factors that must be considered in the
COOPERATIVE MARKETING OF COTTON 33
complex problem of rural organization. One association is develop-
ing a plan to form locals that will have certain definite business
activities, though decidedly limited. A few leaders in the movement
are considering the possibilities in a cooperative cotton gin as a
nucleus for a local association. Properly worked out, the ownership
and operation of cooperative gins by local members of the marketing
associations might result in simplifying the entire member ship
problem.
METHODS AND PRACTICES
DELIVERY
Members deliver their cotton after it has been ginned and baled
direct to designated warehouses or compresses, to railroad com-
panies for shipment to designated warehouses or compresses, or to
local receiving agents employed by the association.
The most cenerally employed of the three methods is delivery
to a railroad company for shipment, freight collect, to a designated
compress or warehouse. The member hauls his cotton to the freight
station, attaches to each bale a shipping tag, and has the local freight
agent prepare a “shipper’s order” bill of lading. There is in-
serted in the bill of lading his contract number, the shipping-tag
number, the gin weight, and any special notations ordered inserted
by the associations, such as, “To be compressed in transit, carrier’s
privilege.” The shipping tags used are furnished by the associa-
tions to all members prior to the delivery period each season. When
delivering directly to a near-by compress or local warehouse each
bale is weighed and a compress or warehouse receipt is furnished,
which describes the cotton in much the same way as a bill of
lading.
The member takes the bill of lading or the warehouse receipt
to a local bank and attaches it to a sight draft on the association
for the amount per pound or per bale previously announced by the
association. His contract number and the weight of the cotton is
noted on the draft, which is also signed by any hen holders or
mortgagees. The bank pays the member or his designated creditor,
and forwards the draft with the bill of lading or receipt attached
directly or through its correspondent bank to the association’s custo-
dian bank, where it is honored.
A few associations require that all members draw drafts at time
of delivery for the full amount of the advance. Most of them,
however, provide for the use of member’s invoices in instances
where growers do not desire cash advances. In such cases the
association mails the member its note for the amount he was en-
titled to draw. These notes are payable in some instances on de-
mand and in some associations in 60 days or longer. They usually
bear 6 per cent interest. Special forms of dr afts and invoices are
supplied by the associations to all banks in their territory.
Several associations employ local receiving agents at delivery
points to assist members in delivering and in obtaining advances.
The Oklahoma association adopted the plan in its second year.
In 1924-25 it had about 400 receiving agents, who were paid 30 cents
per bale up to 1,500 bales and 25 cents per bale thereafter, with a
bonus at the end of the season. The North Carolina association
had 254 in the 1924-25 season; the Georgia association about 250;
.
84 BULLETIN 1392, U. 8. DEPARTMENT OF AGRICULTURE
and the South Carolina association about 450, the rate of payment
being 15 cents per bale in each association. A few were used by
three other associations, under special conditions, the rate of pay-
ment ranging from 20 cents to 50 cents per bale. The Mississippi
staple association, as previously outlined, has its local managers at
each receiving point. The other seven associations provide no
special aid in delivering beyond, in some States, such assistance as
may be rendered by local field-service workers.
WAREHOUSING
The associations, while having the authority to form subsidiary
warehousing corporations, have not found it necessary or advisable
to provide their own storage facilities. They use public warehouses,
selecting those which are advantageously located and most suitable
for their purpose.
Warehousing is necessary to protect cotton from damage, deterio-
ration, and loss from theft; to obtain economical handling in connec-
tion with its movement in the marketing process; and to facilitate
financing by providing negotiable receipts which are recognized as
desirable collateral for loan purposes. The integrity of the receipt
is largely determined by the conditions under which it is issued. For
this reason some of the associations use only warehouses licensed
under the United States warehouse act, and certain others use them
for the major portion of their cotton. The warehouses not so licensed
must have also the approval of lending banks.
The associations have found that their use of many small interior
warehouses is expensive and in other ways undesirable. Concentra-
tion in relatively few advantageously located warehouses has re-
sulted in a lower storage cost, a reduced insurance premium, and
decided advantages in handling, selling, and shipping. The extent
to which concentration is desirable or practical varies in the different
States, depending mainly on the character and extent of existing
storage facilities, railroad facilities, tariff rates, and especially the
consuming markets to which the cotton is to be shipped.
The Texas, Oklahoma, and Louisiana associations concentrate all
their cotton at Gulf ports—at Houston, Galveston, and New Orleans,
respectively. Prior to adopting this plan of port concentration the
Texas association used 71 interior warehouses or compresses, Okla-
homa 22, and Louisiana 5. The North Carolina association has
reduced the number of storage places used from 80 to about 46;
Alabama, from about 200 to 125; and some of the others have made
equal or greater reductions. During the 1924-25 season the Missis-
sippi staple association used 21, Arizona 2, Arkansas Cotton Grow-
ers’ Cooperative Association about 25, the Arkansas Farmers’ Union
association about 9, Georgia 17, the Mississippi Farm Bureau asso-
ciation 31, Tennessee 6, and Missouri 5.
In the States outside of southern mill districts where the bulk of
the cotton crop is compressed, storing occurs at interior or port com-
press points in the large warehouses operated in connection with the
compresses. The interior compresses reduce the size of the gin bale
by compressing it from a density of about 12 pounds per cubic foot
to a “standard” density of from 22 to 24 pounds, resulting in lower
costs for freight, storage, and insurance. Freight rates usually in-
clude the charge for compressing.
COOPERATIVE MARKETING OF COTTON 35
- Practically all association cotton is compressed, except that pro-
~ duced and sold in southern mill districts. When shipped abroad it
is further compressed at the port, the standard density being reduced
to a “high density ” of from 32 to 38 pounds per cubic foot.
Inasmuch as compressing results in the addition of extra ties and
patches, the weight of the bale is increased between delivery by the
farmer and its receipt by the ultimate buyer. Following trade
practices, the associations show this gain in weight or “profit on
patching” as a gain accruing to its members. Although shippers
seem to believe that the extra weight of bagging and ties results in a
profit from the sale of bagging and ties at the price of cotton, many
students of the complex question of tare take the position that the
amount of tare is taken into consideration in the prices paid and that
the apparent gain is not a net gain, but an economic loss. However,
whatever advantage may accrue to the merchant or exporter in add-
ing weight now accrues to the grower in the cooperative marketing
plan. In some instances there is a gain in weight from the absorp-
tion of moisture, which, when it occurs, is obviously a net gain to the
cooperatives.
The practice of receiving cotton soon after ginning and immedi-
ately storing it in suitable warehouses is effective in reducing the
enormous annual loss caused by weather damage. This damage is
frequently called “country damage” because the bulk of it ordi-
narily occurs at country points. Asa result of a study made by the
Department of Agriculture in 1919 the average annual amount of this
damage was estimated at $2.50 per bale or $30,000,000 a year. Claims
for weather damage actually paid by the Texas association on the
cotton exported in 1923-24 amounted to only 8.5 cents per bale for
the 111,341 bales it exported in that year. The associations practi-
cally eliminate the loss from weather damage to their cotton, par-
ticularily the major part which occurs at country points to unware-
housed bales. This is an advantage to its members, although the
amount of the net gain is not as large as the estimated losses might
indicate, because the gain is offset to some extent by the costs incident
to providing protection.
INSURANCE
Under the long-established practices in cotton marketing, wherein
the cost involved in handling was taken into consideration in the
prices paid the grower, cotton merchants were more interested in
obtaining insurance rates on the same general level with their com-
petitors than in bringing about materially lower rates for the benefit
of the industry, including the growers. The cooperatives in their
properly directed efforts to bring about reductions by so handling
their cotton as to reduce the hazards have not only directly bene-
fited their members but also have indirectly benefited the entire
industry. For example, the announcement of the Staple Cotton
Cooperative Association in 1921 that it would store cotton only in
warehouses licensed under the United States warehouse act brought
all delta warehouses under Government regulations, which resulted
immediately in a 25 per cent reduction in insurance rates, beneficial
alike to the association and all handlers of delta cotton. It was
estimated that in the 1921-22 season alone savings in insurance pre-
miums on cotton in these warehouses amounted to over $280,000.
36 BULLETIN 1392,°U. S. DEPARTMENT OF AGRICULTURE
In establishing insurance rates warehouses are classed as AAA. AA,
A, B, C, and D. The AAA elass includes a very few in which the
risk, especially from fire loss, is reduced to a minimum; the D class
includes a large number which provide the least protection. The
rates may range in warehouses of the different classes from as much
as 75 cents per month per $100 value to as low as 25 cents per year.
In 1921-22, when the Texas association used interior A, B, C, and
D warehouses, its insurance in storage amounted to $1. 51 per $100,
and in 1923-24, with all cotton concentrated in an AAA warehouse,
the cost was 16.2 cents. In 1924-25 the staple association figured its
insurance from the time its members’ cotton was ginned until deliv-
ery to buyers at 39 cents per $100.
‘A good example of the savings effected from year to year by an
association using interior warehouses is found in the:operations of
the Georgia association. This association has reduced the number
of warehouses each year by discontinuing the use of small local ware-
houses with limited facilities and protection. Its storage cost per
bale per month in 1922-23 was approximately 50.4 cents, 32.4 cents
in 1923-24, and 23.5 cents in 1924-25. The average insurance rate per
$i00 value per month in the same years was approximately 19.8
cents, 11.4 cents, and 9 cents, respectively.
The associations carry insurance on all cotton from the time it is
delivered until ownership and possession pass to the buyers. In
most cases coverage is effective from the time a member delivers
cotton at the gin, from the time it takes the form of a bale, or from
the time it leaves the gin. In a few cases it is not effective until
actual delivery to the association. Gin policies, being carried to
cover cotton only for the brief period between ginning and delivery,
are as a rule effective for 10 days. With their large volume of busi-
ness and their policy of reducing risks, the cooperatives are In a
position to obtain from the large insurance companies the lowest
possible rates. In making public the economies effected in insur-
ance costs they have directed attention to the causes of high rates,
which should force a general improvement in warehouse construc-
tion and operation.
SAMPLING |
Samples are obtained from each bale on arrival at the designated
warehouse or compress. The warehouseman, if licensed under the
United States warehouse act, draws the samples according to regu-
lations of the act, the s samples being obtained from both sides of the
bale and weighing not less than 4 ounces. A sample coupon, printed
in duplicate or triplicate and showing the number of the bale from
which it is drawn, is wrapped in each sample. The samples are
then packed in baskets and delivered to the classing room, if sam-
pling and classing occur in the same city, or they are » packed i in bags
and shipped by express to association headquarters. Figure 5 shows
the arrival of a shipment of samples at the office of the Oklahoma
association.
Unless unusual conditions make resampling necessary, each bale
is sampled once only. This practice eliminates the loss to the growers
from the excessive sampling that usually occurs when they offer
their cotton to several different buyers at local markets. In their
cooperative marketing plan, the growers rather than the buyers
receive the proceeds from the sale of samples, which amounts in the
aggregate to a considerable sum. The so-called “ city crop,” which
COOPERATIVE MARKETING OF COTTON a1
is made up of samples, press sweepings, and pickings from damaged
bales, has been estimated to amount to 150,000 bales per year. “In
Fig. 5.—A shipment of samples from a licensed warehouse received at association head-
quarters
| the 1923-24 season 10 of the associations belonging to the American
| Cotton Growers’ Exchange received $169, 308 from sales of loose
| cotton and samples.
Fic. 6.—Part of the sample room of the Texas Farm Bureau Cotton Association, at
Dallas. Each roll contains samples of 50 bales of cotton
Figure 6 shows a part of the sample room in the Dallas office of the
Texas association,
38 BULLETIN 1392, U. S. DEPARTMENT OF AGRICULTURE
CLASSING
Each association employs a head classer and several additional
classers, the number depending upon the volume of deliveries. Many
Fic. 7.—Checking samples received from warehouses. If the tag numbers in each sample
correspond to the association’s records, the samples are delivered immediately to the
classing room
of these are licensed by the United States Department of Agricul-
ture under either the cotton standards act or the warehouse act. In
every case classing 1s based on the official cotton standards.
I'ic. 8.—Classing room of the Oklahoma Cotton Growers’ Association. Each sample is
examined and its grade and staple determines the pool in which the bale is placed
The Texas and Louisiana associations maintain classing offices at
their concentration points; all others at general headquarters. On
COOPERATIVE MARKETING OF COTTON 39
receipt of samples they are checked, as shown in Figure 7, and
classed, as shown in Figure 8. The class or the pool symbol repre-
senting it is stamped on the duplicate coupons, one part of which
remains with the sample, the other being sent to the accounting de-
partment. When samples are “split,” that is, divided for the pur-
pose of storing in two different places, as is the practice in the Texas
association, triplicate coupons are used.
After the classers determine by examination the grade and staple
of the sample, they are sorted into even-running lots—50 or 100
samples representing as many bales of the same class—wrapped
together and placed in racks in the sample room. (See fig. 6.)
An outstanding advantage in cooperative marketing is the practice
of classing cotton prior to rather than after it is sold. The initial
sale of members’ cotton on a classed basis eliminates the evils incident
to the common practice of farmers selling to local buyers at an aver-
age or “ hog round ” price. The cooperative practice assures a price
commensurate with quality, and provides an incentive for the pro-
duction of better cotton. An examination of the records of one short-
cotton association shows that 69.6 per cent of its cotton in 1921-22
classed middling or above; 87.3 per cent in 1922-23; 61.3 per cent in
1923-24; and 92.2 per cent in 1924-25,
FINANCING
The associations, under their plan of organization and opera-
tion, need little investment capital. With only two exceptions, in
which reserves have been invested in office buildings, they lease
their office space. They require, however, large sums to finance the
handling of their cotton, the total amount depending on the quantity
of cotton received, the market price, the percentage of the price
advanced to members, the sales policy, and the policy regarding dis-
tributions.
In the beginning some associations proposed to obtain money to
finance operations from local banks throughout their respective
States, but this plan proved unsatisfactory. Although some money
is obtained from small local banks, the tendency soon developed to
deal directly with a relatively few banks and financial agencies and
to obtain credit in financial centers where lowest interest rates and
most favorable terms could be obtained.
In 1921 the four newly organized associations faced their first
season without funds, credit, or reputation. Local banks delayed or
refused the support anticipated, or loaned within limits that only
partially met requirements. Attempts to borrow from large eastern
banks were unsuccessful. Finally, relief came at the opportune time
from the War Finance Corporation. In July, 1921, the War Fi-
nance Corporation, which had been. revived in January for the
purpose of aiding in financing the exportation of agricultural and
other commodities, granted the Staple Cotton Cooperative Associa-
tion credit to the extent of $5,000,000. Credit was later extended to
the Oklahoma, Arizona, and Texas organizations, the total com-
mitment to the four for financing the orderly marketing of their
estimated receipts, particularly in foreign commerce, involving
approximately $50,000,000. Very little of this amount was used,
but the fact that it was made available greatly helped the credit
of the associations. With the War Finance Corporation extending
40 BULLETIN 1392, U. 8S. DEPARTMENT OF AGRICULTURE
a line of credit in the first and in subsequent years, private banking
institutions offered to supply funds at either cheaper rates or on
more favorable terms.
With the exception of the first year the associations have ex-
perienced little difficulty in financing each season’s_ operations.
They have succeeded 1n overcoming, to a large extent, the handicap
of the usual nonstock organization in this matter. Their present
favorable position as regards credit is the result of conservative
management, the maintaining of a satisfactory margin between the
value of the cotton handled and the loans thereon, the building up
of reserves, the use of warehouse receipts from approved warehouses,
especially those operating under the Federal warehouse act, and
the adoption of other policies and practices that tend to establish
confidence and responsibility.
Prior to the beginning of a season the management estimates its
credit needs and arranges for a line of credit usually in excess of
actual requirements. This is obtained mainly from large eastern
banks, the larger city banks of the South, and the intermediate
credit banks. U sually the loans are made available through a local
bank which acts as trustee or custodian. This bank, acting for the
group of lending banks, receives and holds the collateral, including
bills of lading and war chouse receipts, and turns over the money to
the association. The forms of obligation most commonly used by
the associations are bankers’ acceptances and 30, 60, and 90-day notes.
Loans in some instances are predicated upon sales of certain quanti-
ties of cotton within prescribed time limits.
Trust receipts are used sometimes in obtaining funds to make
advances at the beginning of a season and in some instances to ex-
pedite shipments of stored cotton when the associations must have
possession of the warehouse receipts. Under similar conditions,
when few warehouse receipts have accumulated in the hands of the
custodian, the associations have found an advantageous use for their
reserves. Loans from members, usually on demand or for 30, 60, or
90 days, have also been a factor in financing, especially in the early
part of the season. At one time the South Carolina association bor-
rowed over $1,125,000 from its members.
At the beginning of the 1924-25 season a committee from the
American Cotton Growers’ Exchange arranged a line of credit of
$100,000,000 for its member organizations at interest rates between
4 and 41% per cent. A study of one association shows that it paid
an average interest rate for borrowed money of 6 per cent in
1921-22; 5.51 per cent in 1922-23; 6.84 per cent in 1923-24; and
4.75 per "cent im 1924-95. It used go 5,629,000 in 1924-25, borrowing
$14,903,000 within the State and $10,726,000 in the East. One rea-
son given by the staple association for its desire to redeem two issues
of advance fund certificates is that the 6 per cent interest being paid
on these certificates is in excess of the rate at which it can borrow,
which was 4.67 per cent in 1924-25.
Under present conditions and with the prevailing practice of giv-
ing bankers a margin of protection of approximately 35 per cent,
the credit of the associations is practically unlimited. The amount
loaned per bale may be less than the loans to some competing spot
merchants who provide protection against price declines by hedging
in the futures market, but the associations are in a position to ‘bor-
COOPERATIVE MARKETING OF COTTON Al
row at as low interest rates as any business organization doing a like
business, and certainly at rates materially lower than could be ob-
tained by individual producers.
DISTRIBUTIONS
Inasmuch as the loan value of association cotton seems to have
been fixed by lending banks at approximately 65 per cent of the
market price, it is important to plan distributions to members so as
to maintain at all times a 35 per cent unencumbered margin in unsold
cotton. This means that payments should not at any time exceed the
amount that can be borrowed on unsold cotton, plus approximately
35 per cent of the proceeds derived from sales. With some exceptions
this policy has been followed in making advances and in determining
the dates and amounts of subsequent distributions.
The usual advance to members immediately on delivery is about
60 per cent of the value of unclassed cotton. The desirability of
making advances according to the class of the cotton, rather than on a
bale or weight basis, is recognized, but can not be done under the
present operating plan without delaying payment. ‘The associations,
therefore, make the same percentage advance on all cotton delivered,
and in subsequent distributions, made after the cotton is classed,
adjust the advance on the basis of grade, staple, and weight.
Distributions are made from time to time during the season as
sales are made and cash accumulates. When consistent with con-
servative management the general practice is to make the first dis-
tribution in December, a second in February, and a final settlement
between April and July. The Mississippi staple association makes
monthly distribution.
AGRICULTURAL CREDIT CORPORATIONS
The volume of cotton handled by the associations each year has
been considerably less than the volume represented by signed con-
tracts. Although a number of factors must be taken into considera-
tion in accounting for this wide difference, the most important is the
unusual extent to which cotton production is based upon credit.
The most important development in the efforts of the association
to solve the problem of handling mortgaged cotton has been the
organization of agricultural credit corporations under the agricul-
tural credits act of 1923. Through these corporations they endeavor
to facilitate delivery by supplying funds to pay off mortgages, or to
prevent mortgaging to other interests by supplying production credit
to its members on more favorable terms. Loans are made by the cor-
porations, not by the associations. In some instances the corpora-
tions have the same officers as the associations, occupy the same offices,
and are, in fact, subsidiary or accessory organizations, although in
no case are the associations liable for the corporations’ acts or debts
beyond their investments in capital stock.
In 1925 one or more agricultural-credit corporations had been
organized by eight associations and were being organized by three
others. Some of those in operation were formed to supply produc-
_ tion credit, others to finance the delivery of mortgaged cotton. An
example of the first type is the North Carolina Agricultural Credit
Corporation, which was organized November 4, 1923. Its issued
stock is owned by banks and individuals. Local banks act as its
agents in making loans to association members for production pur-
ee
49 BULLETIN 1392, U. S. DEPARTMENT OF AGRICULTURE
poses. An example of the other type is the Texas Cotton Growers’ |
Finance Corporation, which confines its activity to taking up mort-.
gages where the security is ample and where the mortgagee would
force the sale of the cotton in other channels. In Georgia four dis-
trict corporations have been formed for production credit, the capital
stock of three being owned by farmers, and in the fourth by farmers
and banks. A fifth corporation, in which the stock is owned exclu-
sively by the association, has been organized to finance the delivery
of mortgaged crops.
In entering the field of production credit, through these subsidiary
or accessory corporations the associations propose to make credit
available through the intermediate-credit banks only in instances
where local bank facilities are inadequate or where the banks for
other reasons do not supply the needs of their members for inter-
mediate credit.
SELLING
Each association, with the exceptions previously mentioned, has a
sales department or division, with an experienced cotton salesman in
immediate charge. The practice of maintaining sales agents and
brokerage connections in different markets and the extent of this
representation varies in the different organizations. Some have their
own agents and representatives in both domestic and foreign spin-
ners’ markets, although the 13 associations affiliated with the Ameri-
can Cotton Growers’ Exchange, with one exception, use in part or
exclusively the foreign offices and representatives maintained by the
exchange. Some use its sales service not only abroad but in all
domestic markets outside of the States in which they are located.
Membership in the exchange makes its general sales service avail-
able, but does not restrict the member to its use. At the present time
the member association may sell all, a part, or none of its cotton
through the exchange. If cotton is offered through the exchange, —
bids are obtained from buyers and transmitted to the association, its
confirmation in turn being transmitted to the buyer. In any case
the association has the privilege of naming the price at which its
cotton is to be offered or of rejecting any bids obtained by the ex-
change. When sales are made the individual association assumes
full responsibility and handles directly shipments, billings, and any
claims for adjustments.
Cotton is sold on sample, on type, and on description. Buyers
may visit the headquarters of the association and purchase any quan-
tity after inspecting bale or type samples; they may inspect sam-_
ples sent to spinners’ markets and make their purchase by mail, tele-
graph, or cable; or they may buy on description without samples.
The sale on type is most extensively used, the type samples repre-
senting a grade, staple length, and character of cotton, but no par-
ticular bales.
Sales are made for immediate delivery or for delivery in desig-
nated months. The agreement regarding each sale, especially those
for forward delivery, describes the kind and quantity of cotton, the
month or months of delivery, the futures market and the futures
month on which the price is to be based, the “on” or “off” to be
allowed, the party who has the right to call the time the price is to
COOPERATIVE MARKETING OF COTTON 43
be fixed, the place of delivery, the rules governing delivery, and the
_terms of payment if different from the usual terms of cash on the
day of shipment.°
In spinners’ markets in the United States, which are those markets
located in close proximity to mill centers to supply mill needs, cotton
is offered in even-running lots by dealers, merchants, and brokers
and is bought by mill buyers or their representatives. In Europe
the mills buy mainly through buying brokers who, in turn, purchase
through selling brokers or agents of importing merchants. In mak-
ing sales in spinners’ markets price bargaining is almost entirely
confined to the “basis” or parity between spots and futures. In
American markets prices are made in terms of New York and New
Orleans futures. The bargaining points are the premium or dis-
count or the points “on” or “off” the futures price for grades above
and below middling, for staple lengths, and for delivery of even-
running cotton at the mills’ warehouse.
The cooperatives, subject to their general orderly marketing poli-
cies, sell cotton wherever the best price is obtainable. In the past a
large part of the sales have been to exporters, although they offer to
sell to anyone. The volume of their direct-to-mill sales has not
equaled the early expectations of many leaders in the movement,
but it has exceeded the expectations of others who recognized the
handicaps under which they compete for mill business. ‘The Staple
Cotton Cooperative Association sells approximately 92.5 per cent of
its cotton to the mill trade, a record made possible to a large extent
by the different conditions in the staple-cotton trade, and the fact that
this association, through its willingness to use the futures market,
is In a position to handle mill business in accordance with established
methods of mill buying.
With the exception of the staple association, the cooperatives, as
a rule, do not use the futures market in hedge transactions. They
take the position that their business is confined to sales of spot cot-
ton, and that their plan of pooling and distributing sales through-
out the year operates as insurance against short-time fluctuations in
the price and enables them to obtain a better average price than they
could if they hedged. Many men in the cotton trade maintain that
their nonuse of the futures market is contrary to modern merchan-
dising methods and is a mistake. Undoubtedly the conservative use
of the futures market has strengthened the position of the staple
association with the trade and with bankers, and has not caused
a revolt on the part of the members who, most association leaders
believe, object to transactions in the futures market. Such an ob-
jection in one association resulted in the abandonment of its early
practice of making sales on call.
Many mills make it.a practice to purchase their cotton on “ buyers’
call,” a method that gives the mill an advantage in bargaining for
the sale of its product and does not require it to carry the hedge.
Under this plan the mill purchases cotton for forward delivery at
so many points “on” or “ off ” a futures month. When it decides to
call it notifies the seller, who immediately fixes the price by a sale of
future contracts, which at the same time cancels his prior purchase
of future contracts. This method of sale is agreeable with the spot
> Cox, A. B. Studies in Cotton Marketing.
44 BULLETIN 1392, 15. 8. DEPARTMENT OF AGRICULTURE
merchant, but is not practiced by the cooperatives. They do, how-
ever, use “ sellers’ call,’ inasmuch as the buyer, under this method,
purchases the future contracts which are sold for its account when
the seller fixes the price.
The use of buyers’ call in facilitating direct-to-mill business is
only one of several advantages in the use of the futures markets
that are recognized by many association officials. They believe,
however, and to some extent have demonstrated that handicaps re-
sulting from its nonuse can be overcome. This is being evidenced
by the considerable quantity of cotton sold direct to the mills, and
the commendations of several spinners’ organizations. With their
large stocks concentrated at advantageous points, they are in a posi-
tion to furnish even-running cotton “of almost any kind, at almost
any time, and in almost any “quantity.
ACCOUNTING
The handling of accounts and records of all transactions is ha
concentrated in an “accounting and general office department ”
Fic. 9.—Part of the general office of the Texas Farm Bureau Cotton Association
charge of an office manager. (See fig. 9.) In this department,
which plans, balances, and correlates detailed operating methods
into a continuous operating entity, it was found necessary to de-
velop an accounting system more intricate and expensive than that
required in an ordinary cotton enterprise. The cooperative char-
acter of the organization necessitates detailed and accurate records
for each member and each bale of cotton.
Records are kept showing the time and place of shipment or deliv-
ery of each bale, the w: arehouse or compress to which it was delivered
and in which it is stored, the bale number, the member’s contract
number, gin weight, warehouse or compress weight, the bank through
which the member’s draft was handled, mortgages and landlord
interests, the date and amount of all advances and payments, the
grade and staple, the pool number, expense items chargeable against
COOPERATIVE MARKETING OF COTTON 45
the bale, records of sale and shipment, and any other information
necessary for proper identification and proper settlement with the
grower. In addition to the regular accounts of members, there are,
in some cases, special accounts and joint accounts. In the final state-
ments sent to members each bale is listed, showing tag number,
weight, class, average pool price, deductions, prior payments, and
the net balance.
In general, the work of the accounting department involves the
examination, balancing, and office handling of collateral; general
bookkeeping, including records and statements of receipts and dis-
bursements; examination and recording of drafts and mortgages;
handling of expense and distribution checks: keeping membership
records; verifying bale numbers, contract numbers, and unloading
reports: issuing shipping tags, instructions, etc.; applying pool num-
bers and weights on unloading reports; issuing advices of. weight and
class; tabulating, including “the punching, verifying, listing, and
filing of receiving pool, bale, sale cards, ete.: handling incoming
and outgoing mail; preparing and distributing forms; purchasing
Fic. 10.—Tabulating machines in the office of the Oklahoma Cotton Growers’ Association
supphes; filing correspondence, preparing regular and special re-
ports, etc.
Most of the associations have increased the efficiency of their
accounting units by installing modern labor-saving machinery. (Fig.
10.) Perforated-card machines, consisting of ‘punchers, verifiers,
assorters, and tabulating printers, are used to obtain speed and
accuracy in much of the detailed clerical work. The cards used have
a series of numbers in various columns, each number representing
a pool, warehouse, compress, bank, etc. By punching the cards and
running them through the machines it is possible to obtain in a very
short time information and figures that ordinarily would require the
time of several people. Duplicating, addressing, and mailing ma-
chines also contribute to the efficiency of the general office.
46 BULLETIN 1392,-U. S. DEPARTMENT OF AGRICULTURE
The associations not only recognize the necessity of having com-
plete information, but also for obtaining this information with a
minimum amount of time and expense. To do this changes in opera-
tions and methods have been made from time to time, and will doubt-
less continue to be made as experience and study indicate more
advantageous methods. In general, these changes have tended both
to increase efficiency and reduce costs. As an example, the Texas asso-
ciation handled 93,802 bales in the 1921-22 season with about 148
people in the general office during the peak period of deliveries; in
1922-23, with 77,706 bales, it had 50 people during the peak season ;
in 1923-24, with 182,318 bales, it had 71 people; and in 1924-25,
with over 280,000 bales, it had 71 people. General office costs per
bale were $3.15 in 1921-22, $3.59 in 1922-23, $2.26 in 1923-24, and
$1.99 in 1924-25.
In accordance with good business practice, regular audits are
made of the association’s books. The by-laws of the organizations
provide that internal auditing committees may be appointed, and
that periodical audits and annual reports must be made by a certified
public accountant.
FIELD SERVICE
The most difficult problem confronting the cotton associations is
that of obtaining and maintaining a membership that understands
the principles, purposes, and operations involved in cooperative ac-
tivities in general, and in the cooperative marketing of cotton in
particular. Inasmuch as the associations were organized without
this understanding on the part of the growers, it was found advis-
able to develop ways and means to conduct educational work as a |
part of the operating problem.
Field-service work has been made necessary by (1) this lack
of prev ious experience and thorough understanding on the part
of the members, (2) the mistakes and misconceptions traceable to
overenthusiasm in the intensive organization campaigns, (3) the
unusual scale of organization, including thousands of members scat-
tered over relativ ely large areas, (4) the high degree of centraliza-
tion in this type of organization, which does not tend to develop a
sense of individual responsibility, and (5) the unfavorable condi-
tions, particularly as regards credit, under which the crop is ordi-
narily produced and sold. The problem has been complicated by the
lack of experience and of established practices in conducting field-
service work in organizations of this size and character.
The effectiveness of field-service work is being measured in the
cotton cooperatives largely by the percentage of deliveries obtained.
Field men are charged not only with the responsibility of obtaining
new members, but also of gétting deliveries from the old members.
To do this it is necessary to maintain close contacts with members;
to keep them thoroughly informed regarding association affairs; to
interpret conditions, policies, and regulations; to correct misunder-
standings and combat misleading reports, and to carry on such edu-
cational work as may be necessary to assure membership loyalty,
based on understanding, that is essential to ultimate success. Meas-
uring the effectiveness of field service by deliveries should, therefore,
take into consideration the methods by which deliveries are stimulat-
ed. Police methods and litigation may be effective temporarily, but
COOPERATIVE MARKETING OF COTTON A7
-
a program depending on legal action to obtain support of members
would eventually defeat its purpose. Coercion can not be substituted
for education in providing an intelligent, informed, and sympathetic
_ membership.
_ The or ganization of the field-service departments and the meth-
_ ods of conducting the work vary considerably in the different
associations. Uniformity is being brought about, however, par-
ticularly in those associations connected with the American Cotton
Growers’ Exchange, through the adoption of the “ uniform field-
service plan ” shown in Figure 11. This plan, which embodies the
best experience of the several associations, was presented and
approved at a field-service conference at Memphis, Tenn., December
5 and 6, 1924.
It provides for a director of field service in each organization,
and for permanent district supervisors to be located in definite
districts, each supervisor covering an area containing approxi-
mately 2,000 members. Under the “district supervisors are the local
solicitors or representatives, who are paid on a commission basis
for temporary work, especially during the delivery season, in so-
UNIFORM FIELD SERVICE PLAN
BOARD OF DIRECTORS
GENERAL MANAGER.
DELIVERY RECORDS SALES RFCOROS
OFFICE OF THE DIRECTOR OF FIELD SERVICE
“52> ee, ie INFORMATION DEPT. [~~~~~—“"~"[-~"~"~"-"Té6mMuNI
i]
i; SUPERVISOR DISTRICT SUPERVISOR. |
!
—— a
!
!
I
!
| ae Tae 1
iS
a SCHOOL = oso) SCHOOL GROUP \ | GROUP SCHOOL GROUP SCHOOL GROUP
COMMUMITY COMMUNITYT \LEADER/ | ADER/ |COMMUNITY[\LEADER / |ComMmuArTY ADER.
:
j es
1; ---1 MEMBERS IN EACH DISTRICT
--{FARM PAPERS NEWSPAPERS MAGAZINES =
Be SSS SSS a a GENERAL
BUSINESS MEN PUBLIC
Fic. 11.—The field service organization and plan which was presented and approved at
a conference of directors of field service, held at Memphis, Tenn., December 5—6, 1924,
PY
NOUSE ORGAN
AEE TR
;
j in the office of the American Cotton Growers’ Exchange
licitng members and expediting deliveries. The plan also con-
templates the grouping of members and the selection of group
leaders, one such leader for each 10 members. This leader is the
point of contact and the spokesman for the group. The school
‘community is recognized as the basis for local grouping.
Immediately responsible to the field-service director, in the uni-
form plan, is a director of publicity, who edits the association’s
house organ that is sent tu all members, issues a field-service pile
‘tin exclusively for field workers, prepares booklets, newspaper and
‘Magazine articles, and other publicity material for various agencies
and purposes. A bank man is provided for in the plan, in the
event conditions warrant the employment of a representative to
48 BULLETIN 1392, U. S. DEPARTMENT OF AGRICULTURE
work exclusively with bankers and business men in furthering the |
interests of the ‘association. A department of community programs
is also provided for to give direct encouragement and assistance in
the organization of rural communities.
The uniform field-service plan is not in effect in its entirety in
the different associations, but is being developed so far as condi-
tions permit or warrant. Eight associations maintain their own
rather extensive field-service or reanizations with from 6 to approxti-
mately 40 employees; the Alabama and Louisiana associations have
agreements with the farm bureau federations in their respective
States whereby these organizations conduct or contribute to field
work; the Mississippi staple, the Arizona, and the Missouri asso-
ciations each have one man for this work; and the farmers’ union
association depends on its parent organization.
COSTS AND PRICES
A thorough analysis of marketing costs is beyond the scope of
this discussion, and ‘without such an analysis the publication of com-
parative figures is likely to be misleading. Comparisons of market-
ing costs are of little value, except for organizations rendering a like
service under like conditions. Even then detailed explanations are |
often necessary. One association may show a higher marketing cost
than another, which may be more than offset by the price received,
the increased expense being necessary to obtain the higher price,
Comparisons of net proceeds to growers in different associations
and to members and nonmembers are also inadequate in determining
the value or efficiency of an association or of the cooperative-market-
ing plan unless they take into consideration the service rendered.
In some instances association costs have been relatively high, re-
sulting mainly from inexperience in this type of enterprise, unusual
expense incident to beginning operations, smaller volume of busi-
ness than was anticipated, and inefliciency in management. As @
group, however, the costs under present conditions appear to be com-
mensurate with the service rendered. !
Undoubtedly further economies in operation are possible, and the
associations may reduce their costs from time to time without im-
pairing their service and they may find it advisable to improve or
extend their service. In any case the kind and degree of service
rendered should be the basis in determining whether operating costs
are high or low.
In general, the cooperative associations, despite the mistakes and
difficulties in their first few years of operation, have demonstrated
many actual and potential advantages in cooperative effort in mar-
keting cotton. Organized primar ily to render service to their mem-
bers, ‘they have been, directly and indirectly, of economic benefit
to the industry.
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