Tuesday, January 5, 2010

Cotton Futures Prices Not Manipulated

Cotton Futures Prices Not Manipulated

After a 20-month study, the Commodity Futures Trading Commission concluded there was no market manipulation which resulted in the huge spike in cotton prices in 2008.

The CFTC could find no one reason for the large increase in cotton prices, but said it was probably a great number of factors which ended in the failure of two of the top cotton producers in America.

At the time of the crazy price swings, cotton contracts were traded on the IntercontinentalExchange's Futures U.S., which used to be called the New York Board of Trade.

This was good to hear as the government can't protect grownups from losing money when they invest, and it shouldn't have wasted all this time checking into this when you consider that a lot of commodities surged in price during that time period such as copper, oil and wheat. It's called supply and demand.

Here were some of the conclusions of the CFTC:

- The trading activity of the largest longs was not consistent with activity that would cause an increase in the price of cotton futures or options.

- Many market participants active in the futures and option markets before futures prices reached limit up were cotton merchants, who held significant short positions. They would not benefit financially from manipulating the price of cotton.

- During critical time periods before futures prices reached limit up, no participant in the option market had a significant long position or sold a significant existing option position.

- The merchants with large short positions were hedged, holding sufficient physical cotton to deliver against their contracts. There was no shortage of physical cotton, certificated stocks were rising. Little interest in March contract.

Per the report, some of the reasons for the increase in prices included the increase in commodity prices, tight credit, migration to electronic trading from pit trading, large market participants and limits on cotton market prices.

Cotton Futures Prices Not Manipulated

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