COTTON PRICES AND MARKETS 71 
demand and supply conditions in the futures market on one side and 
in the spot market on the other. 
Spots are likely to sell at a premium in a period when the carry- 
over is small and the crop short, on the one side, and when there is a 
brisk mill demand on the other. That condition was well illustrated 
on September 15, 1923, when New Orleans October futures were 
quoted at 27.12 and spots at 27.50 in the same market. This condi- 
tion may be forced because the merchants sell for forward delivery 
at specified dates specific grades in large quantities and the crop 
turns out to be shorter than expected, or for any reason moves to 
market slowly. 
CURRENT OR NEAB MONTH FUTURES MAY BE HIGHER THAN DISTANT MONTHS 
Future contracts for delivery in different months have different 
prices at any given time. When the distant months are at a dis- 
count, the problems of the cotton merchant become more difficult, 
especially if he has sold on call or is accumulating a stock of hedged 
cotton. Spot prices are based on the near month and the merchant 
doing this kind of business must hedge in a distant month or run the 
risk of taking his hedge out of the near month as it matures and 
transferring it forward. The latter method may involve more loss 
than the former. 
A large part of the cotton crop has to be carried for several 
months after harvest. It is contended that because of this fact the 
distant months should normally be at a premium to pay the neces- 
sary carrying charges. 
Several reasons are advanced in explanation of the frequent occur- 
rence of discounts on the distant months: (1) A current short crop 
is most often stressed, because it causes a scramble for cotton by 
those who have sold for forward shipment. Each is ignorant of 
how much others sell, so together they may oversell the supply. 
Covering of these short sales raises the price abnormally on near 
positions, thus leaving distant months relatively lower. (2) The 
manner of placing the hedge has an important influence. The 
spinners are inclined to operate on a hand-to-mouth policy in fixing 
the price on raw cotton, especially if the advance in the price has 
been strong. On the other hand, they may buy heavily of call cotton 
on basis, to be sure to get the cotton they wish. Much of the cotton 
bought on call is hedged in a distant month. Thus, while there is a 
strong demand for spot cotton by merchants in anticipation of 
future needs, the weight of the crop in hedges may be placed in the 
forward months rather than against the immediate demand. (3) 
These discounts in the distant months may be due partly to uncer- 
tain business conditions. (4) A declining price level may cause such 
discounts. (5) In the spring months, following a high-price crop, 
the prospects of the new crop may have an important influence in 
causing discounts in the later months of the year. 
Figure 15 shows the average price of New York cotton futures 
quoted in December for delivery in December and in May, for the 
crop years 1915-16 to 1923-24. 
In passing out of the boom period resulting from the World War, 
when prices reached a high level, the futures market tended to stay 
well under spots. On August 7, 1920, August spots were quoted at 
