Comments to 

Commodity Futures Trading Commission Forum 

April 22, 2008 

By 

C.B. Coley, 

Chairman, American Cotton Producers 

of the National Cotton Council 

Mr. Chairman, I am Chuck Coley from Vienna Georgia. I am a partner in Coley Farms 

which produces cotton and peanuts and also serve as president of Coley Gin and 

Fertilizer Company. I am here today representing U.S. cotton producers in my capacity 

as Chairman of the American Cotton Producers of the National Cotton Council. The 

ACP represents producer interests within the Council which is the national trade 

organization for the U.S. raw cotton industry. 

We commend the CFTC for conducting this forum to address a very serious issue 

confronting the cotton industry. The cotton futures market is totally dysfunctional at the 

current time. The impact of unregulated investments by index funds and other 

speculators have resulted in a complete divergence of cash and futures prices. This 

scenario is common to grain, oilseed and cotton markets but appears more severe in 

cotton futures trading. As an example, synthetic cotton price increases that had no 

relevance to the fundamental market conditions rose over thirty percent in one day last 

month and continue to be highly volatile. 

The New York Cotton Exchange was founded in 1870 as the first commodity exchange 

in this country and has served this industry well for over 100 years. The frustration 

shared by cotton producers stems from a cotton futures market that is now unable to 

discover future prices with any historical correspondence to cash prices and provide a 

hedging mechanism. Cotton merchants are no longer offering forward contracts to 

producers because of extreme price risks. A large Memphis merchant was quoted as 

saying their company has not bought a single bale of cotton in a month because they 

didn’t know how to hedge it. 

Likewise, producers are unable to convince their bankers to assume similar risks for their 

own price protection. Therefore, as cotton prices have soared and plunged over the past 

month, producers, along with merchants are merely bystanders. 

Not only have we been on the outside of the market, we are also deeply troubled about 

the impact this recent price volatility has had on the liquidity of buyers. Traditional 

merchandising relationships between growers and buyers have ceased because price risks 

are too great for short hedging purposes. Growers continue to be concerned about the 

financial viability of buyers with whom they have previously contracted new crop sales. 

This situation equally applies to growers who trade with private merchants and those who 

belong to marketing cooperatives. 
Cotton futures markets must be returned to their historical function of price discovery and 

risk management relative to real market conditions. Cotton producers face extreme 

pressures from escalating input costs which threaten their viability and yet currently have 

no mechanism to forward price their production at reasonable costs. 

We strongly urge the CFTC to use its authority and exercise its responsibility to protect 

market participants against manipulation. As growers we concur with recommendations 

from our merchandizing segments that call for more transparency in trading. We urge 

CFTC to apply the same speculative limits and reporting requirements to all market 

participants. Consideration should also be given to increasing speculative position 

margins and disallowing any increase in speculative position limits. The CFTC should 

also urge the Intercontinental Exchange to consider expanding certification delivery 

points and take measures that would ease certification costs. 

In spite of our concern and frustration, we are not seeking legislative or regulatory 

changes that bar parties from entering the market. On the contrary, we clearly understand 

the importance of speculative participation in a viable futures market. However it is 

incumbent upon the CFTC to use its authority to regulate futures markets so as to provide 

meaningful risk management and price discovery. 

Many in the cotton industry question what the public policy position of the CFTC should 

be regarding futures markets. Should these markets be regulated so that their primary 

purpose is to facilitate the cash market by providing price discovery and risk transfer, 

which has been its historic role? Or should they be regulated so that their primary 

purpose is to provide an investment vehicle to invest in commodities without taking title 

to the physical commodity? Our concern is that it has become the later and that is not 

healthy for cotton or any commodity markets. 

Unfortunately the state of the market does not allow the CFTC to evaluate its options 

over an extended period of time. Decisive action is needed in the short term to restore the 

confidence in the markets for producers and all segments to operate in this crop year. If 

this is not accomplished, the viability of the U.S. cotton industry is at stake. 

Thank you for the opportunity to share our concerns and to participate in this forum.