62 BULLETIN 1444, U. S. DEPARTMENT OF AGRICULTURE 
The purpose of the passage of the cotton futures act in 1914 was, 
essentially, to make the price of contracts for future delivery regis- 
ter the true price level of cotton, and during the current month to 
make sure, accurate, and prompt, the liquidation of futures con- 
tracts with spot cotton. This section of the bulletin deals with the 
important problems involved in arriving at correct conversion ratios. 
Provided the costs of receiving cotton are the same, the contract 
under normal conditions should be as valuable as spot cotton of the 
basis grade where several grades may be tendered against one con- 
tract. It is not enough merely to specify that certain grades must 
be accepted in fulfillment of contracts. Settlement must be made 
promptly at maturity. The obligation and privileges of buyer and 
seller must be specific. Expense of delivery must be reduced to a 
minimum. The inspection service and the classification of the cot- 
ton must be correct beyond reasonable question. 
The futures contract is a one-class contract for price quotation 
purposes, but provides that, where settlement is made by the de- 
livery of spot cotton, any one or more of the grades specified as de- 
liverable may be tendered, provided the rules are followed in making 
price adjustments for grades above and below Middling, the basis 
grade. The seller does not agree to deliver a specific grade in the set- 
tlement of a future contract, as the risk would be too great. The large 
volume of contracts being sold would give every inducement to the 
speculator to corner the market for contracts of a particular grade. 
CONVERSION OF SPOTS INTO "CONTRACT CLASS" EQUIVALENT 
Since specific grade contracts have so far proven impractical in 
the sale of futures, one of the first problems to solve in devising an 
equitable contract, one that will maintain the proper parity between 
spots and futures, has been to discover a satisfactory way of arriving 
at the correct value of the various classes of spot cotton in terms of 
the basis grade. These adjustments are now made by means of price 
differentials established by commercial values. 
As previously shown, the class of cotton is made up of four ele- 
ments: Grade, color, staple, and character. Therefore, to carry 
out the idea perfectly, the differentials, the " ons " and " offs," should 
include correct values for all four of these factors. At present, price 
differentials are quoted officially for grade and color for the classes 
deliverable on contracts. 
The universal standards for grades and colors of American upland 
cotton for which practical forms or copies are prepared and sold by 
the department are the following: 
No. 1 or middling fair. 
No. 2 or Strict Good Middling. 
No. 3 or Good Middling. 
No. 4 or Strict Middling. 
No. 5 or Middling. 
No. 6 or Strict Low Middling. 
No. 7 or Low Middling. 
No. 8 or Strict Good Ordinary. 
No. 9 or Good Ordinary. 
No. 3 Tinged, or Good Middling Yellow Tinged. 
No. 4 Tinged, or Strict Middling Yellow Tinged. 
No. 5 Tinged, or Middling Yellow Tinged. 
No. 6 Tinged, or Strict Low Middling Yellow Tinged. 
No. 7 Tinged, or Low Middling Yellow Tinged. 
