42 BULLETIN 1444, U. S. DEPARTMENT OF AGRICULTURE 
PRICE-MAKING FORCES IN CENTRAL MARKETS " 
Factors which determine price in the central markets are: (1) 
Price of futures, (2) volume and nature of mill purchases, and (3) 
freedom with which the grower parts with his cotton. The price 
of futures is the predominant factor. The degree of its control 
varies with different conditions. In a short crop year when mills 
buy considerable forward cotton and the spot movement is light, 
the futures are the least dominant. The trade expresses it by say- 
ing the basis is high, which means that spots are high in compari- 
son with futures. The price to which spots may go above futures 
for the active month is limited only by the fear of not receiving the 
required cotton on a future contract to satisfy an even-running spot 
contract. Such a situation is likely to develop at the beginning of 
the season when the crop is late, or on a rapidly declining market. 
Futures may go above spots because there may be more contracts 
sold and more purchasers asking for delivery than can be satisfied 
with deliverable spot cotton available in the particular market. 
This may happen because the deliverable cotton is pledged for for- 
ward delivery, or because the unusual demand develops so late in 
the spot or current month that it is impossible to deliver cotton 
from distant points. The last instance is known as " squeeze." 
These strained price relationships are more likely to exist when the 
world's volume of deliverable cotton is small. When spots may be 
bought at a price which will permit delivery against contracts with- 
out loss, the basis is said to be low, weak, or easy. If the buyer of 
spots is unable to hedge his purchase to obtain normal profits, he 
says the basis is high or strong. 
MARKET TRANSACTIONS 
There are three types of market transactions in the centralizing 
markets: (1) Sale to spinners, (2) transaction in futures, and (3) 
purchase of spot cotton. Either (1) or (3) may come first, but 
never (2) without speculation. The sale to spinners is given first 
because they often buy liberally of the new crop before the begin- 
ning of harvest. Heavy buying usually starts in August. The pur- 
chase is made for forward delivery. If the price is fixed by the 
mill at the time, the merchant who makes the sale protects himself 
with the purchase of a future contract. Sometime previous to 
delivery date he buys the spot cotton to fill the order, and, as he 
buys, he sells the futures previously bought; otherwise he would be 
speculating. As the season advances and the spot movement grows 
in volume, the order of sales is reversed. The spots are bought first, 
the hedges are sold next, and the sale of the spots to the mill and 
the purchase of hedges sold occur at a still later date. 
BUYING COTTON BY FIRMS IN CENTRAL MARKETS 
The merchant or shipper in a central market may buy his cotton 
in a number of ways. He may buy from brokers," factors, f. o. b. 
shippers*, and other merchants in the market; or he may have an 
organization for buying in the primary markets. He usually does 
27 See also pp. 44 and 48. 
