Sunday, June 1, 2008

some folks shorted cotton and got 'ginned'

Cotton producers, upset that prices spiked a whole 25 cents above their 40 year average, have formally whined to government regulators, according to Bloomberg.

``Over the last couple of months, farmers, merchants and shippers have been unable to conduct business as they have for the last 150 years because of the inability to properly hedge their positions,'' Roger K. Haldenby, a vice president for operations at Plains Cotton Growers Inc. in Lubbock, Texas, said in an interview yesterday.

sounds like some folks shorted cotton and got 'ginned'. have a look at this long-term chart of cotton futures and then tell me that the recent swings are truly 'unusual':

to me it would seem more unusual if the price of cotton didn't fluctuate wildly.

another complaint has been the disconnect between spot prices and futures prices. at the moment they do, in fact, seem pretty large, which would indicate that supplies are quite adequate for the time being, and/or there is still some speculative overhang in the forward months yet to be rung out. or maybe the growers gotta dump a lotta cotton right quick to pay back all those margin calls...

but I want to point out that the one year contango at the high this March was 10%. last March it was 10%. March before that it was 10%. so on the way up at least the contango was nothing out of the ordinary.

I'm not recommending the purchase of cotton futures right this moment (though buying physical cotton now looks attractive if you can work out the logistics). I'm just amazed that folks are complaining that the price of a commodity's gone too high when it's lower than it was 35 years ago. someday, I don't Know when, but perhaps not too far off, the price of cotton will shoot past a buck and not come back. ever. ironically you'll see all too many farmers go bankrupt when that happens.