What Is a Grading Certificate?

A grading certificate is a document issued by inspectors or an approved grading panel that formally signifies the quality of a commodity. A grading certificate is vital; a product must be identified as exchange-grade in order to be deliverable for futures trades.

Various commodities exchanges individually issue detailed guidelines that describe the characteristics that qualify a commodity as an exchange-grade commodity.

Key Takeaways

  • A grading certificate is a document issued by inspectors or an approved grading panel that formally signifies the quality of a commodity.
  • A grading certificate is vital; a product must be identified as exchange-grade in order to be deliverable for futures trades.
  • Many government agencies or officials perform inspecting or grading services; an inspections services company can also fulfill this role.

How a Grading Certificate Works

​​​​​​​A wide variety of authorized inspectors or panels may issue a grading certificate. The use of the most appropriate inspector will depend on the commodity involved. Many government agencies or officials perform these services. However, enlisting the services of an inspections services company can also fulfill this role.

These commodity grading certificates serve valuable purposes which are helpful to both the buyer and seller of a commodity in the futures market. The document provides an official, objective determination of the product's value, quality, and condition. It not only establishes the status for a sale or exchange but can also serve as valuable documentation necessary to obtain loans or submit claims in case of a loss. 

Grading certificates may also help justify an increased price—in the case of a higher-quality product. Conversely, they may support the rejection of, or decrease payment, for a commodity deemed not up to par.

The exact details outlined in a grading certificate will vary depending on the materials or products evaluated by the inspector.

Example of Grading Certificate

For example, a grading certificate for cocoa would indicate:

  • Its country of origin
  • A description of the product
  • The condition of the product such as hammy, smoky, or dry
  • The grade, such as the percentage of defective beans in the total lot
  • An amount, indicated by the count and expressed as the number of beans per kilogram

Also, the document will state whether the cocoa meets the commodity exchange's standards. The certificate is valid for a limited time as determined by the exchange and the commodity.

Special Considerations

Commodity Inspection Credentials

A state agricultural department may have a commodity inspection and grading division which will perform voluntary inspections for a set fee, paid by the user. These same departments might also offer a grading certificate training and testing program for those who want to obtain the credentials to perform evaluations. Once receiving a commodity tester certificate, there will be periodic continuing education programs or testing to maintain current status as an approved inspector.