COTTOX PRICES AXD MARKETS 61 
The result aimed at by the straddle may be accomplished by the 
moving of their hedges by the spot interests. An exporter who has 
cotton hedged in New York will transfer it to Liverpool, if it 
becomes high. His purchase of New York and sale of Liverpool 
raises the former and lowers the latter. 
STRADDLE BETWEEN DIFFERENT DELIVERY MONTHS 
Prices are quoted on contracts for delivery in each of the next 
following 11 months. The price is different for each month and the 
difference is variable, because each month is subject to slightly 
different sets of circumstances. If the speculator thinks the price 
of contracts for delivery in one month is too low .compared with 
another, he sells the high and buys the low. If he thinks prices 
are too narrow he buys the high and sells the low. 
Spot interests also tend to keep price movements for different 
months in line. A mill buyer may have bought December contracts 
in October, say at 25.10 cents, to cover an order for goods to be de- 
livered in the spring. Before he buys the spot cotton to fill the 
order, he may find that December contracts have gone up 500 points, 
while March contracts have advanced only 400 points. He may 
thus sell his Decembers and buy Marches and make a profit. Thus, 
the spinners and merchants watch every opportunity to move their 
hedges forward or backward to improve their positions in the mar- 
ket. The speculators and the spot interests do a great deal of this 
kind of buying and selling, so that this type of transaction accounts 
for much of the buying and selling of future contracts on the 
exchanges. 
COST OF PRODUCTION 
Cost of production is one factor in determining the price of the 
supply on the market. It influences price through its anticipated 
effects on future supplies. Speculators tend somewhat to calculate 
the investment value of cotton On the relation of price to cost of 
production. Cost of production may also affect present supply by 
limiting .the quantity harvested. 32 Yield is a factor affecting cost 
of production, but it is not so important with cotton as with some 
other commodities, because the big element in cost is picking; and 
picking costs vary directly and not inversely with supply. 
CONVERSION OF PRICE OF SPOTS INTO PRICE OF FUTURES 
THE TWO CONTRACTS 
The price-making forces in the futures market operate somewhat 
differently from those in the spot markets. The transferability of 
the contract in the futures market makes it extremely liquid and 
prices adjust quickly to changing conditions. Spot -cotton prices are 
more subject to immediate conditions. The contracts are specific and 
not so easily transferred. The processes of settling forward de- 
livery spot contracts may force spots out of line with futures in a 
rapidly moving market. 
32 For a more detailed discussion see Cox, A. B., " cost of production and its rela- 
tion to price." Cir. No. 267, Tex. A. and M\ College. 
