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- 
