Beat ‘Em Up, But Don’t Kill ‘Em?

In this issue, Cotton Grower associate editor Drew Harris addresses his, mine and our industry’s concerns over the almost unbelievably erratic cotton prices on the New York Cotton Exchange. His is in the Market Moment section.

The question is, is our market broken? The answer is no … but it needs some serious fixin’.

Speculative hedge funds have been blamed for taking cotton fundamentals out of the price equation, and most of the blame is warranted. But I’ll also defend them in that speculators provide market liquidity, love ‘em or hate ‘em.

Back in another life, I worked at a small country grain elevator and was involved in hedging grain. During a similarly erratic market, I had a grower tell me that speculators shouldn’t be allowed in the market – only those who grow or merchandise agricultural products get to trade them. My explanation to him of how speculators serve a definite purpose was this: You like the current price and you want to sell me 10,000 bushels of soybeans today. But I tell you that I have plenty of soybeans for the moment, and I can’t buy your soybeans today. So what do you do? You go to the Chicago Board of Trade and sell contracts to cover yourself. Who bought those contracts? In all likelihood, a speculator. That is his purpose – he keeps the market liquid. By doing this, you have locked in a price for your soybeans, then you deliver them to me when I can take them.

On the other hand, speculative hedge funds are out of control. I was told at the Mid-South Farm and Gin Show in Memphis earlier this month that the cotton market was 250% over-bought. At some point, the long positions have to settle up, and when they do, prices will drop accordingly. Which is exactly what has happened since then. Fundamentals didn’t count for much.

That is not a healthy market, and I have no answers on how to correct it. But the Commodities Futures Trading Commission is taking the industry’s complaints seriously, and has announced it will hold a public meeting on April 22 to hear concerns. That news item, plus a link to letters written by the National Cotton Council and the American Cotton Shippers Association, is also in this issue.

We can’t and shouldn’t run the speculators off. But what we have to do, as they say where I grew up, is “make ‘em do right.” I guess we just beat ‘em up, but don’t kill ‘em, huh? Just joking.

And the winners are …

Winning Bass Pro Shop gift certificates at the Beltwide Cotton Conferences in Nashville were: Michael L. Davis ($100) and Paula Pope ($50)