NY Futures Are A Free-for-All

By Drew Harris
Associate Editor, Cotton Grower Magazine

Last week's volatility of cotton in the NY Futures market will probably be remembered - although it would rather be forgotten - for a long time by the U.S. cotton industry. The entire week was owned by the funds, as they drove prices on a wild ride, climbing in the beginning of the week before free-falling on Thursday and Friday. Four out of five days the market reached the limit, and the new 4-cent limit even came to the game.

It looks like Monday is more of the same. Limit down - red across the screen.

What is the cotton trade going to do? Are the funds and electronic trading going to run cotton merchants out of town? Are they going to increase prices so that U.S. cotton isn't competitive on the global market?

This scenario can't be good for the global cotton industry. Something's got to be done. It's almost like the spec funds are playing a million dollar slot machine with an unlimited amount of money. They know the machine is going to hit, and they just have to keep playing until it does. Then they get up and leave. A couple days later, when the regular players have dumped in their money to get the machine closer to a jackpot, the funds start pumping that arm again. And it will hit again.

But that's just fantasy. The problem with reality is that cotton merchants and traders are part of a global supply chain that provides clothing, towels, bed sheeting, and Q-tips to the entire world. There may be a slow-down in the U.S. economy, but make no mistake about this: the world is still growing exponentially, and we will all need to wear clothes, dry off, sleep comfortably and clean our ears in the future.

If something is not done to fix this issue of spec funds dominating NY Futures, problems will get worse. But what's the answer? Some say limit the funds activity, but that seems almost un-American. Some say it will correct itself, but that seems a little too utopian. Do you have any ideas on how we could correct this situation? I would like to hear them: dharris@meistermedia.com