Cotton Options and the Pilot Projects on Futures Trading

Dr. O.A. Cleveland, Jr.


 
ABSTRACT

While cotton options began trading in October, 1984, the real birth occurred during the summer of 1986. The options market has proven to be quite liquid and accommodating to all. Some producers have achieved excellent success with both put and call options as pricing alternatives as well as in combination with other alternatives. Open interest in options reached a peak near 15,000 contracts in September and the market experienced several record trading days during the summer months.

The 1985 farm bill's push for use of options in the private sector risk avoidance markets is opening this new marketing alternative to many producers who otherwise would have been slow to use it. In the declaration of policy in the Food Security Act of 1985, Congress found the following:

1. A need for investigation and development of alternative price support programs carried out by the Department of Agriculture. 2. That agricultural producers and others have insufficient knowledge concerning the nature and extent of price stabilization available in the private sector. 3. More information is needed to assess in such private sector risk avoidance services.



Reprinted from 1987 Proceedings: Beltwide Cotton Production Research Conferences pp. 398 - 399
©National Cotton Council, Memphis TN

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Document last modified Sunday, Dec 6 1998