What is 'Grading Certificate'

Grading certificate is a document issued by inspectors or an approved grading panel that formally signifies the quality of a commodity. The grading certificate is important because a commodity must be identified as exchange grade to be deliverable. Commodities exchanges issue detailed guidelines describing the characteristics that qualify a commodity as exchange grade.

BREAKING DOWN 'Grading Certificate'

A grading certificate can be issued by a wide variety of authorized inspectors or panels. The best or most appropriate inspector(s) will depend on the exact type of commodity involved. Many government agencies or officials perform these services, but private inspections services can also be enlisted to fulfill this role.

As an example of a public options, state agricultural departments may have a commodity inspection and grading division which will perform voluntary inspections for a set fee that is paid by the user. These same departments also often offer a grading certificate training and testing program for those who want to obtain the credentials to perform these evaluations. In these situations, once a commodity testing certificate is obtained, the tester usually must periodically participate in continuing education programs or take a test to maintain their status as an approved inspector.

These commodity grading certificates serve a number of valuable purposes that can be helpful to both the buyer and seller. The certificate provides an official, objective determination of value and confirmation of condition. This report not only establishes the value for a sale or exchange, but can also serve as important documentation necessary to obtain loans or submit claims in case of loss. They may also help justify an increased value in the case of higher-quality products. By contrast, they may also justify a rejection or decrease in value if the products are determined to be not up to par.

Example of grading certificate information

The exact details outlined in a grading certificate will vary depending on the materials or products that are being evaluated by the inspector. For example, a grading certificate for cocoa would indicate its growth as indicated by its country of origin, a description, condition such as hammy or smoky, and the grade, which indicates the percentage of defective beans in the total. It would also indicate the count, expressed in number of beans per kilogram, and state whether the cocoa meets the commodity exchange's standards. The certificate would only be valid for a limited time as determined by the exchange, such as the current delivery month plus one month thereafter.

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