What is in this article?:
- Highest cotton prices in history followed by equally squat low-valued lint forced a frightening situation in futures market.
- 350,000 cotton acres or less in California this year brings the industry close to the minimum needed to maintain industry viability.
- Association (ACSA) members revealed that “up to 3 million bales of U.S. cotton at an estimated value as high as $1 billion is either in default or at risk. That is a staggering number.”
Collapse of 2008
Overall, it was an optimistic tone from all speakers, except one.
Cotton trader Gerald Marshall, owner of The Yiyang Company, which manages private trading accounts in cotton, told merchants and others at WCSA that the collapse in the cotton futures market of March 2008 can happen again.
Prior to forming his company in 2007, Marshall worked with Cargill Cotton, where he was global trading manager. He is past president of ACSA.
Wall Street’s investment in commodities is a “match made in hell. It has turned the price discovery futures into a haven for major investors seeking to more safely park assets.”
The problem with this is that “cotton futures contracts are designed to be self-liquidating, not to handle investment flows.”
The California Public Employees’ Retirement System (CALPERS) is now a bigger commodity trader than Cargill, according to Marshall. CALPERS has more than $40 billion in assets it manages for the more than 1.6 million California public employees, retirees, and their families.
This commodity as assets broke the Cotton Futures market in March 2008 and created a bloodbath among traditional cotton traders who could not meet margin calls created by the speculative institutional investors.
So far, government regulators have done nothing to prevent another market collapse. It would have, had the March 2008 debacle hit other commodities as hard as it did cotton.
Marshall said March 2008 will repeat itself if trading limits are not set and futures trading is made more expensive for these traders by raising margins.
“We have got to make commodities unattractive” to these large investors. “It is up to us to force a change in the system,” says Marshall.