72 
BULLETIN 1444, IT. S. DEPARTMENT OF AGRICULTURE 
36.75 for Middling at New Orleans and August futures at 32.40. 
At the same time contracts for delivery in May of 1921 were quoted 
at 28.50. On September IT, 1920, New Orleans spots were quoted 
at 28.00, and September futures at 27.51. On October 8, 1920, New 
Orleans spots were quoted at 22.25, and October futures were 22.00. 
If spots are sold higher than usual in relation to futures the basis 
is said to be high ; if they are sold for less, the basis is low or weak. 
Merchants want a " weak " or " easy " basis in the fall when they 
are buying and hedging their cotton. After their cotton is bought, 
any strengthening of the basis means a profit. The basis or parity 
usually " improves," that is, goes higher on a declining market. A 
AVERAGE MONTHLY PRICES OF NEW YORK COTTON FUTURES 
QUOTED. IN DECEMBER FOR DELIVERY IN THAT 
MONTH AND IN THE FOLLOWING MAY 
1915 - 1925 
PER 
POUND 
- 
36 
De 
c. Delivery 
y ' 
\ 
\\p> Mai 
4 \ 
l \ 
» \ 
\ \ 
/ Delivery 
" 
32 
28 
Zk 
20 
16 
12 
h'^**^*> 
/ * 
i * 
/ * 
/ * 
- 
it 
ft 
\ \ 
\ \ 
» v 
» \ 
- 
•1 
" 
A 
^g& 
V 
- 
1915 
1916 
1917 
1918 
1919 
1920 
192! 
1922 1923 
1924 1925 
Fig. 15. — This chart shows the discount of distant months as compared with the near 
active month. Current futures may be higher than those of distant months in spite 
of carrying costs. The prices indicated are the averages of the official daily closing 
quotations of the New York Cotton Exchange for each business day in December on 
contracts for delivery in that month and in the following May 
merchant carrying a large stock of hedged cotton profits by such 
declines in the price. 
The relationship between the average monthly price of Middling 
spot cotton in 10 designated markets and New York futures for the 
next active month is shown in Figure 16. 
The price of spot cotton may be below futures. The two main 
reasons are the cost of carrying the actual cotton as compared with 
a contract and the price risk of doing so. (Sometimes the current 
month futures will be higher than spots in the central markets be- 
cause of a squeeze. Such abnormal conditions are not taken into 
account here. The price risk lies in the changes in differentials 
between Middling and other classes. Spots are normally lower 
than futures when there are heavy sales of spots for which there 
is no immediate commercial demand and the cotton has to be 
hedged and carried by the buyers. Moreover, under such conditions 
