RACK SAMPLERACK SAMPLESURVEYSURVEYCommissioned by:

NCC's Rack Sample Study CommitteeWilliam E. Bowen Jr., Chairman

Rack Sample SurveyResolution

10 h. encourage the National Cotton Council to study the practice of maintaining rack samples and determine if this practice can be altered or eventually eliminated while achieving industry cost reductions and new efficiencies, at the same time recognizing the need for samples to be readily provided;

Rack Sample SurveyScope of Survey

• Define Current Warehouse Sample-Handling Practices and Associated Costs

• Define How and Why Buyer’s Samples Are Used

• Survey NOTNOT Designed to Decide If Buyer’s Samples Should Be Eliminated.

THIS WAS NOT A VOTE!

Rack Sample Survey Response Rate

• Warehouse– 86 Responses – 7,465,244 Bales (41% of 2003 Production)

• Merchant– 14 Responses– 5,600,000 Bales (31% of 2003 Production)

• Mill– 16 Responses– 5,034,219 Bales (80% of 2003 Mill Consumption)

72% 75%

7%

1%

95%

19%23%

93%

10% 4%

0%

20%

40%

60%

80%

100%

Mid-South39%

2,940,914

Southeast 13%

958,626

Southwest41%

3,036,714

West 7%

517,814

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Traditional Racking On-Demand Cut & PullStore in Sack Store in Bale Head

Warehouse: Handling Methods

27%

20% 20%

27%

41%

11%

4%5%

16% 16%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2000-01 2001-02 2002-03 2003-04

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Mid-South Southeast Southwest West Total

Warehouse: Regional Buyer's Samples Requested

Warehouse: Net Cost

•Traditional Racking: Costs/Sample Provided ↓ as Number of Samples Requested ↑

•Cut & Pull: Costs/Sample Provided Unchanged as Number of Samples Requested ↑

•Store in Bag: Market Structure/Merchandizing Effects

•Store in Bale Head: Very Limited Number of Observations

Average Cost per Buyer’s Sample ProvidedVariable Costs

Fixed Costs

RevenueTotal Costs

Traditional Racking $4.37 $0.37 $0.51 $4.23

On-Demand Cut & Pull $4.17 $0.00 $0.00 $4.17

Store in Bag $1.50 $0.13 $0.51 $1.12

Store in Bale Head $1.67 $0.00 $0.11 $1.56

Warehouse: Net Cost of Buyer’s Samples

Respondents’ Segment’s

Mid-South $2,385,922 $5,235,835

Southeast $995,829 $4,649,546

Southwest $547,466 $758,644

West $31,772 $153,579

Total $3,960,989 $10,797,604

Warehouse Summary

• Significant Regional Differences in Handling Practices and the Number of Samples Requested.

• Costs Vary Significantly by Handling Practice and Region.

• Warehouse Segment Net Cost: $10.8 million.

33%30%

32%31%

22%22%24%25%

0%

5%

10%

15%

20%

25%

30%

35%

2000-01 2001-02 2002-03 2003-04

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Samples Ordered from Warehouses Samples Provided to Customers

Merchants: Ordered and Provided Buyer's Samples

51% 49%47% 47%

10% 9% 9% 9%0%

10%

20%

30%

40%

50%

60%

2000-01 2001-02 2002-03 2003-04

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er

Provided: Domestic Mill Provided: Foreign Mill

Merchants: Buyer's Samples Provided to Customers

Merchant Summary

• Merchants reported ordering samples on ≈ 1/3 of volume traded.

• Most Samples Are Passed to Mills

• Their domestic customers are more likely to request samples than their int’l customers.

25%23%

18%

28%

10%

15%

20%

25%

30%

2000-01 2001-02 2002-03 2003-04

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Buyer's Samples Provided by Merchant

Buyer's Samples Cut at Mill

Mills: Buyer’s Samples Providedand Cut at Mill

12%8%

21%

59%

1%

0%

10%

20%

30%

40%

50%

60%

70%

None 1- 5%

6-10%

11-20%

21-40%

41-60%

61-80%

81-100%

Res

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ateg

ory

Mills: Distribution of Buyer's Samples Ordered

Mills: Samples Reviewed

Of Total Bales Consumed in 2003,…• 25% Had Sample Provided

• 22% Had Sample Reviewed

• 3.2% Had Bale Rejected Due to Sample Review

• 0.3% Had Price Adjusted Due to Sample Review

Mills: Samples Reviewed

Of the 25% of Total Bales Consumed That Had a Sampled Provided in 2003,…

• 90% of the Sample Were Reviewed

• 15% of Reviews Resulted in Bale Rejected

• 1.4% of Reviews Resulted in Price Adjustment

In Closing….

MerchantsMerchantsGinnersGinners CrushersCrushers

ProducersProducers

CooperativesCooperatives

WarehousesWarehousesManufacturersManufacturers