Cotton Futures Markets in Europe

Abstract

The price of American cotton tends to be a world price. It is made primarily in the futures markets of the world, which are based on American cotton, because the American crop is the most important and the futures contract is the most highly standardized and the most liquid. The futures markets are the clearing houses for all information which affects either the supply of cotton or the demand for it. This discussion will not be concerned with the problems and technique of handling and marketing spot cotton, for, while they are important and helpful, they are not essential to a fair understanding of the operation and functions of cotton futures markets. Moreover, accurate studies of prices for comparative purposes are more easily made in the futures than the spot cotton markets. There are in all the world only eight cotton futures markets. Three of these, New York, New Orleans, and Chicago, are in America; three of the others, Liverpool, Havre, and Bremen, are in Europe. The seventh one is in Alexandria, and the eighth in Bombay. The first six of these are based on and specify the delivery of cotton of the growth of the United States. The one in Alexandria is based on long staple Egyptian cotton and the one in Bombay on Indian cotton. This discussion will deal entirely with the three European futures markets except where it is advisable to make comparisons with American markets for illustrative purposes. Europe represents the biggest single source of demand for American cotton. Prior to the War, she took normally approximately 56 per cent of the crop. Since the war, the percentage taken by her has not averaged so high. In only one year, 1924-25, has she taken over 50 per cent. When normal conditions are restored, she will probably take about half the American crop. In order therefore to understand the world's price of American cotton and