The New York State legislative committee on speculations in securities and commodities had the following to say on the Coffee Exchange in its report to Governor Charles E. Hughes in 1909:
It [the Coffee Exchange] was established in order to supply a daily market where coffee could be bought and sold and to fix quotations therefor, in distinction from the former method of alternate glut and scarcity, with wide variations in price—in short, to create stability and certainty in trading in an important article of commerce. This it has accomplished; and it has made New York the most important primary coffee market in the United States. But there has been recently introduced a non-commercial factor known as "valorization," a governmental scheme of Brazil, by which the public treasury has assumed to purchase and hold a certain percentage of the coffee grown there, in order to prevent a decline of the price. This has created abnormal conditions in the coffee trade.
All transactions must be reported by the seller to the superintendent of the Exchange, with an exact statement of the time and terms of delivery. The record shows that the average annual sales in the past five years have been in excess of 16,000,000 bags of 130 pounds each.
Contracts may be transferred or offset by voluntary clearings by groups of members. There is no general clearing system.[319] There is a commendable rule providing that, in case of a "corner," the officials may fix a settlement price for contracts to avoid disastrous failures.
The original initiation fee was $250. Seats on the Exchange once sold for as low as $110. In January, 1916, there was a sale at $3,000; in October, 1916, there was a sale for $5,000; in April, 1921, three seats were sold for $5,500 each; but the record price of $8,600 was paid in 1919. Seats are now (1922) worth about $6,000.
The Exchange includes in its membership 323 brokers, importers, dealers, and roasters. Membership is passed upon by a committee on membership; but any one twenty-one years old, resident or non-resident, of good character and commercial standing, is eligible when proposed and seconded by Exchange members. The committee refers the application with its recommendation to the board of managers, which takes a ballot. The adverse vote of one-third of all votes cast rejects.
The Exchange elects annually a president, a vice-president, and a treasurer, who perform the usual duties of Exchange officers. The real governing body is the board of managers, consisting of the president, vice-president, treasurer, and twelve other members. This governing board, meeting monthly, appoints the necessary subordinate officers and employees, and fixes their compensation, and may "summon before them any officer or member for any purpose whatsoever." It appoints the secretary of the Exchange from among its own number, a superintendent of the Exchange, and the numerous committees which are in active charge of specified activities. It also licenses the necessary coffee graders, warehousemen, weighmasters, and samplers of the Exchange.
A brief discussion of the duties of the superintendent and the various committees will help to explain the methods of the Exchange market. The superintendent, under the direction of the board of managers, has charge of the details of its work and of that of the various committees. He keeps all the books and documents of the Exchange; collects and pays over to the treasurer all moneys due the Exchange not otherwise provided for; receives, deposits, and pays over all margins on coffee contracts; has active charge of the Exchange rooms and the bulletin board; and manages and appoints, with the consent of the board of managers, the assistants needed to perform the details of the work under his charge.
One of the functions of the Exchange is to grade and to classify coffee, in which it takes every possible precaution. The rules provide for eight standard grades; and only licensed graders are permitted to pass upon the product handled on the Exchange. There are twenty-five of these graders; one of whom is appointed as a supervisor of types, to provide fresh standards and to "maintain them as nearly as possible on an equality." When these standards are approved by the board and the Exchange, they remain in force for a year.
When coffee is received at a licensed warehouse, two official graders are chosen, one by the buyer and one by the seller. These graders receive four cents a bag if employed by a member; and eight cents a bag, if employed by a non-member.