70 BULLETIN 1444, U. S. DEPARTMENT OF AGRICULTURE 
some conditions he was able to shift part of it to the growers by safe 
buying ; and under others to mills, where they were extremely anxious 
for cotton ; and under others, to speculative buyers of contracts. In the 
case of commercial differences there is no attempt on the part of the 
speculator to assume risks of changes in the differentials for grade. 
The basis of parity risk is a merchant's risk and no way has been 
devised to insure against it. The system of forward delivery sales 
on call and the fluctuations in the size of the crop are the factors most 
important in determining the parity risks. 
THE BASIS 
In cotton-marketing literature the expressions " on " and " off " do 
not always refer to differences in value for grade and staple. A mill, 
for example, may buy Middling %-inch cotton 100 points "on" 
December in December for delivery in December. This difference 
between the price of spots and of futures evidently does not refer to 
" on " for grade and staple, for the grade is Middling and there is no 
premium for %-inch staple. Although such a difference is expressed 
in terms of " ons " and. " offs," it is referred to at the present time by 
the trade as the " basis." The word when used in this sense means 
the price relationship between the named class in a named or im- 
plied market and the price of contracts for delivery in the active 
month of a named future market. The " basis " on Strict Middling 
1% inches may be quoted as 500 on New York landed New England 
points. 
"Basis" is a comparatively new word in cotton-marketing litera- 
ture, and is rather loosely used. In fact, it is used in three different 
senses or, more commonly, it combines three different meanings: (1) 
It may refer to the widening or narrowing of the differences " on " 
and "off" on one or more of the qualities determining class. (2) 
It may be used to designate the relative values of spots and futures 
or what is more correctly called the " parity " between spots and 
futures. (3) It may be used in its original sense, to designate the 
settlement grade in a future contract, the grade from which the 
" ons " and " offs " are reckoned. The future contract in the United 
States has been so thoroughly standardized on Middling White short 
cotton that it is known as "the basis Middling contract," and it is 
often not necessary to use the word " basis " except to distinguish the 
future from a spot sale. 
The significance of differences, fi on " and " off," for grade, color, 
and staple length, in price making has, it is hoped, been sufficiently 
explained. The use of " basis," meaning the settlement grade, is so 
well understood that it needs no further elaboration here. The re- 
maining problem, then, is to explain " basis " when used in the sense 
of parity between spots and futures. 
Parity means the difference between any two prices. The differ- 
ence between spot prices and active month futures is the " basis." It 
is generally known in the trade that at times spots are worth more 
than futures, sometimes they are even, and at other times futures 
may be higher than spots. The purpose of the following discussion 
is to explain the changes in the basis — that is to say, the changes in 
parity between spots and futures. The parity is determined by 
