Is The Cotton Market Broken?

By Drew Harris

dharris@meistermedia.com

“Can I call you back? The market is limit up and things are crazy around here.”

I heard that from two different cotton merchants while making calls last month for Cotton Grower and sister publication Cotton International Magazine.

To say the least, cotton futures have been on a wild ride – so wild in fact that it is risky trying to write about them in a commentary that regularly comes out over a short time frame. In the market situation that we’ve been in recently, a significant change could have occurred by the time I finished writing this.

According to people who buy or sell cotton – those who use the futures market as a hedge against price movements that affect their production and day-to-day business – the NY Futures market isn’t serving its original purpose. Instead, it is a virtual slot machine for one-armed bandit speculative funds whose endless supply of capital and absolutely no ownership of raw cotton create point moves that can’t be explained by any fundamentals.

But should the cotton industry be subject to wild, unreasonable market moves because spec funds are itching for a weekend at the Mirage? That’s not good for anybody, and the cotton industry needs to be extremely observant to how this develops in coming months. With a solid cooperative effort, the cotton industry can preserve the function of the NY Futures and give producers and merchants the hedge they need for the businesses.