58 
Mills do not always wait until they receive orders to begin buy- 
ing the new crop. They may wish to be sure to get the quality of 
cotton desired, so they get in the market by buying for forward 
delivery on their call at a fixed premium on a named month for the 
class delivered, the cotton to be shipped, say in October or December. 
But the privilege of calling the price may be given the seller under 
some circumstances. In either case there is no need for the buyer or 
the seller to enter immediately either the future or the spot market. 
If the merchant buys the cotton before the spinner has called it, he 
ordinarily sells a hedge against it. The cotton may be delivered to 
the mill and manufactured before the price is called if proper 
financial arrangements are made. The mill wishes to call the price 
on the cotton when it sells the goods to be manufactured from it. 
It hopes to keep goods sold ahead of manufacture, but this is not 
always possible. 
The new crop of cotton begins to move in August. This adds 
the fourth and other factor in the market, the spot hedge sale, and 
the transition from the old to the new year is thus completed. 
INFLUENCE OF SPOTS ON PRICE IN FUTURES MARKETS 
The part of the price movement due to the action of any one of 
the four groups is difficult to measure separately. The influence 
most easily measured is the volume of spot cotton being put on the 
market. Almost all of that marketed through competitive channels 
is hedged. The merchant or shipper in the South who buys 100 
bales of cotton sells 100 bales of futures on one of the exchanges. 
If the spinners are not in the market, the speculative buyers are 
called upon to buy the hedges offered. Moreover, if the mills are 
not inclined to buy, speculative sellers may come into the market 
with the hope of buying back their sales when the market has been 
sold off to the point where it tempts mills to buy. The attitude of 
the trade on this point is illustrated by such a quotation as the 
following : 
In view of the failure of the market to hold its recent advance and the 
willingness of planters and factors in the South to sell cotton freely at present 
prices, it looks like bullish influence of the Government crop report were 
discounted. We think the market apt to sell off under the weight of the 
crop movement. 30 
If the weather is good in the fall and the farmers are selling 
freely, it is generally believed in the trade that the volume of hedge 
selling required on the part of the merchants will temporarily drive 
the " basis " down, if not the price of futures. Few of the mills 
purchase their supply for the entire year during the harvest season. 
The volume of hedge sales, therefore, must sooner or later outweigh 
the purchases of hedges by mills. 
According to the trade, the fall dip or the weight of hedge selling 
may be absorbed in the spot market without being shown in the 
future price level and is called a weakening of the basis. In Sep- 
tember, 1923, for example, Middling spots were being bought from 
the farmers at even with December New York. By the latter part 
of October the same cotton was being bought at from 75 to 100 off 
30 Pearsall's Market Bulletin No. 6, Aug. 30, 1923. 
