COTTON PRICES AND MARKETS 69 
to have a wider margin ; for before he bought the cotton the contract 
might be depreciated because certain grades became overvalued. On 
the other hand, the merchant who carried a stock of hedged cotton 
through the period of depreciation of the contract would make a net 
profit in buying back his hedges. This discouraged forward sales 
and tended to throw the full weight of the crop on the market during 
the harvest season and to shift risks of difference changes on the 
farmer. 
The effect of fixed differences on farmers' prices depended on the 
season and general market conditions. The worst kind of condition 
prevailed when differences' were made rather narrow and weather 
conditions subsequently made commercial differences very wide, and 
in addition the mill demand for cotton was very weak and most of 
the cotton had to be hedged and carried by merchants. The future 
price was depressed because of the low grades. The merchant 
wished to buy his cotton on a deliverable basis, so the price he paid 
the farmer tended to be pulled down with the value of contracts. To 
the extent that he bought high grades above the fixed differences, the 
merchant took the risk. It was a definite risk, however, based on his 
estimate of commercial values, and to some this was more welcome 
than the unknown risks involved in the changes incident to the sys- 
tem of commercial differences now in use. 
A_set of differences based essentially on spinning values has been 
proposed. The advocates of this plan believe it possible through 
scientific spinning tests to establish differences once for all and thus 
to eliminate a most vexing problem. Grades are sometimes blended 
to make intermediate grades, but the range of substitution is very 
narrow. There is no questioning the fact that spinning values have 
a place in establishing commercial values, but the percentage of yarn 
turned out is only one factor in determining value. The others vary 
from mill to mill and from time to time, depending on a variety of 
factors. The layout of machinery, the placing and training of the 
laborers, the establishment of branded goods, and other influences are 
price-making factors independent of yarn outturn, and are governed 
by policies partially independent of the laws of supply and demand 
for individual grades. 
RISKS IN PRICE INSURANCE 
Three risks are involved in cotton price insurance. One is the 
risk due to changes in the price level, another is the risk due to 
changes in the relative value of different classes of cotton, and the 
third is the risk due to the change in the " basis " or parity between 
spots and futures. No relationship between spots and futures has 
yet been devised whereby the three may be written into one con- 
tract and shifted to the speculators dealing in contracts for future 
delivery. In so far as the risks of general price changes are con- 
cerned, they may be shifted whether it be under a system of fixed or 
commercial differences. 
No way has yet been devised to carry the risk of changing differ- 
ences in the same contract which carries changes in the general price 
level. The system of fixed differences was an attempt to do it, but 
those differences got out of line with commercial differences and, to 
the extent that they did, the merchant was subject to loss. Under 
