2011 ANNUAL PREVIEW: Time For a Change to the Cotton Contract

By Jim.Robinson|December 22, 2010

In 1931, John Maynard Keynes said, “The market can stay irrational longer than you can stay solvent.” Nearly 80 years later, thanks to the ghosts of 2008, many of us are once again pondering our own “Inner Keynsian.”

However, the current environment is different from the one in 2008, with unbridled demand and strong physical prices for raw cotton (as opposed to abject speculation) driving the futures markets to price levels none of us has ever seen. In truth, this market has behaved somewhat rationally during this most recent price discovery process, only getting sloppy at the tail end of this major move upward. While progress is being made on certain fronts with the Intercontinental Exchange (The ICE) , The National Cotton Council (NCC) and others, there is still plenty for the American Cotton Shipper’s Association (ACSA) to work on , especially in terms of buy-side and sell-side contract sanctity.

Based on the content of an ICE-commissioned Informa study on the delivery point structure for the cotton contract, the ICE appointed a special committee made up of international merchants and cooperatives to study said report and recommend any action that the committee deemed necessary to improve the cotton contract.

As a result of the findings of the committee, I–along with Woods Eastland from Staplcotn and Tom Farley from ICE–testified in front of the Commodity Futures Trading Commission in support of making a fundamental change to the cotton contract by replacing New Orleans with Dallas/Fort Worth as a delivery point. This change will be realized with the December 2013 contract. Texas alone will produce almost 10% of the world’s cotton this year, so it is time for this change.