Trying to stake out a position in the cotton futures pit as prices rise and falter is a little like trying to herd a dozen skittish cats into an elevator. It's not a job for the tranquil type, and no matter how many escape routes you cover at once, at some point you're going to get scratched, as evidenced by one trader on the New York Board of Trade floor during trading on a recent morning.
He tried to buy, or sell — this reporter couldn't tell — and evidently failed to execute an order. He had pumped his palms over his head, bounced on his toes and yelled, to no avail. His shoulders sagged, but not for long. You hesitate in the pits and another cat is out the door.
Larry Ward, a cotton and peanut producer from Atmore, Ala., carefully watched the calisthenics taking place inches away before making an understated observation. “This is moving way too fast for me.”
Ward was one of a dozen or so cotton producers attending the Cotton Forum in New York City, July 7-8, sponsored by NYBOT, Certified FiberMax, Cotton Incorporated, Ag Market Network and Farm Press Publications.
The events began with a mock trading session on July 7, a much tamer version of the real thing. Producers from all over the United States got into the pits with real traders in a simulated trading session.
The Cotton Forum concluded July 8 with the Cotton Roundtable, where cotton market analysts provided outlooks on the cotton markets. Afterwards, attendees watched the opening of futures and options trading in the cotton pits.
Ward, who raises cotton and peanuts in Atmore, Ala., said the mock trading session was a great learning experience. “I've had a feel for trading for a long time, but I've decided I'm going to let the traders do that.”
As for the opening of real trading in the cotton pit, which is open from 10:30 a.m. to 2:15 p.m., Monday through Friday, “It gives you a feeling for where the market is heading for that day. You instantly know what's going on in the market.”
Ward is no novice to marketing. He uses a software package which downloads a complete two- and four-day moving-average package for commodity prices each night. “I also use a firm, Common Sense Commodities which sends me charts and their picks each night.”
Moves to spreads
Ward “moved into spreads this year, either bull spreads or bear spreads to let somebody else pay for the cost of them. I've been very successful this year. Just about all my trades in cotton have been profitable.”
Coley Bailey Jr., who farms about 2,400 acres of cotton near Coffeeville, Miss., said the speakers at the Cotton Roundtable were a big draw for him. When asked about the trading session, he said, “My cousin worked as a trader in Chicago, so I had a little idea of what went on. But it was nothing like I thought. I enjoyed participating in the mock trading, but it would take some getting used to if I had to do it for a living.”
Yazoo City, Miss., producer Rob Coker, who raises cotton, corn and soybeans said the Cotton Roundtable, “gave me a first hand look at the market conditions and where prices were headed.”
The mock trading session “was very enjoyable and made me realize I'm glad I'm a producer and not a trader. It's amazing that they can think on their feet as quickly as they do. They know exactly what they are doing, when they're doing it and why they're doing it, but if you look at it from the outside, you don't think they have a clue, they're just yelling and screaming, buying and selling. But they are very sharp people.”
Coker hopes that Volcot America analyst Peter Egli was correct about cotton prices rising to the 70-cent level next year as the nominal value of other resources increases. “It opens your eyes to the fact that as the value of resources goes up in a nominal value, our prices have to go up in nominal value, too. Not that we would be any better off, but if it doesn't, we're going to be out of business. Our fuel costs, fertilizer costs, tractor costs, labor costs are all going up. We have to have a nominal rise in cotton prices or we are going to be in trouble.”
Coker uses Staplcotn to market his cotton, and Rosenthal-Collins to develop hedging strategies for his counter-cyclical payment.
Bryan Bone and his son Justin, who produce cotton near Bakersfield, Calif., were interested in the educational aspect of the Cotton Forum. “Justin is an ag business major, and I wanted to give him the opportunity to come here and be right in the pit to get an idea of what really happens,” Bryan said. “It's a lot different than sitting somewhere and watching the screens.”
In fact, Justin is thinking of coming back to New York and working in the pits as a clerk. “I'd always wanted to go to the commodity market and just being there yesterday kind of gave birth to that idea again,” Justin said. “We'll see what happens.”
When asked about Cotton Incorporated's sponsorship of the events Jeanne Reeves, associate director of ag research for the organization, said “Learning about futures and options is something producers can do now to add to their bottom line There is a lot of importance to seeing everything in person. Producers are removed from that experience because all these trades are all executed without them knowing how it's done.”