1. Barbara Meredith USDA, AMS, Cotton Program Chief, Market News Branch
Spot Cotton Quotations: How They Are Established and the Challenges Faced By USDA, AMS
Barbara Meredith
USDA, AMS, Cotton Program Chief, Market News Branch

2. How Spot Quotations are established
Legislation and Regulations
Process
Challenges in establishing Spot Cotton Quotations

3. Legislation and Regulations
The U.S. Cotton Futures Act (7 U.S.C. 15b)
Requires that the U.S. Department of Agriculture establish bona fide spot markets and report commercial differences to be used for settlement of New York Cotton Futures contacts
USDA, AMS fulfills the requirements of the act by publishing the Daily Spot Cotton Quotations.

4. Legislation and Regulations
The Code Federal Regulations (CFR) [Title 7 part 27—Cotton Classification Under Cotton Futures Legislation]
Defines the bona fide markets
Establish which markets are to be used for settlement cotton futures contracts
Define the qualities that are to be quoted
Provides general guidelines for establishing the quotations

5. Daily Spot Cotton Quotations
Represent the approximate market value of various qualities of cotton sold in local markets
Can be defined as the cash price for cotton in a local market
Quotations include a price and basis for base quality and differences (premiums and discounts) for all other qualities

6. Daily Spot Cotton Quotations
Spot Quotation Terms
Spot quotations and differences are for cotton equal to the official standards, net weight, in mixed lots
Upland quotations are FOB car/truck which includes compression and any brokerage charges

7. Daily Spot Cotton Quotations
Spot cotton sales include, but are not limited to:
Producer sales
Merchant-to-merchant trading
Sales to mills
Cooperative sales to merchants or mills
Are not limited to the current crop year’s production

8. Daily Spot Cotton Quotations
To cover all growth areas there are Seven Spot Markets
Southeast
North Delta
South Delta
East Texas/Oklahoma
West Texas
Desert Southwest
San Joaquin Valley

9. Daily Spot Cotton Quotations
United States Average
Simple average of differences in each market that quotes the quality
Each market carries same weight

10. Qualities that are Quoted
Tenderable Qualities Deliverable on Futures Contracts are quoted in all markets
Non-deliverable qualities in markets where those qualities are normally produced or traded

11. Qualities that are Quoted

12. Establishing Quotations
Area Market Reporters
contact buyers and sellers daily either by personal visit, telephone or fax
Ask about spot sales and or purchases
Receive Re-Caps from buyers and sellers
Have access to The Seam
Compare re-cap prices to previous day’s spot quotations
Prices reported in local terms are adjusted to quotation terms

13. Establishing Quotations
Recaps are combined with others for the reporter to analyze

14. Establishing Quotations
Summaries and recommendations for changes to basis and or difference are submitted to branch management
After reviewing and talking to the reporter, the recommendations are approved, disapproved or modified

15. Establishing Quotations
When there is limited trading
Prices for qualities that did trade are used in determining quotations for these qualities that were not reported
When there is no trading, Quotations can be determined by:
bona fide bids and offers
Sales of hedged cotton,
Other sales of cotton (sale of CCC Loan Equities),
Changes in the price of the futures contract

16. Challenges Volume of Spot Sales Reported
Qualities that are quoted in each market do not represent the quality of cotton currently being produced in the regions
US Average does not accurately represent the average spot quotation value

17. Volume of Spot Sales Reported

18. Volume of Spot Sales Reported
Working to increase buyer and seller participation
Working to increase awareness of importance of participation
Working with buyers to determine best ways to use non-spot transactions when there is no spot cotton trading

19. Quality of Cotton Quoted
Qualities quoted do not represent quality of cotton currently being produced in the regions
Increase in higher color grades and longer staple lengths
Decrease in the percentage of shorter staple lengths (staple 31 and lower)
Especially in the East Texas-Oklahoma and West Texas Markets

20. Quality of Cotton Quoted

21. Quality of Cotton Quoted

22. Quality of Cotton Quoted
Evaluating quality results in order to determine which non-deliverable qualities should be quoted
Area Reporters working with their contacts to determine price relationships between qualities that are more prevalent and those that are rarely traded

23. US Average
Simple average of differences in each market that quotes the quality
Each market carries same weight
14.29% for qualities quoted in all markets
US average does not reflect production distribution

24. US Average

25. US Average
Added weighted US average to the Monthly Cotton Price Statistics Report
Market year to date report
Based on previous crop year's production by spot market
USDA, NASS final production data
Evaluation possible inclusion of weighted average in Daily Spot Cotton Quotations

26. Reports are on the web at:
Comments and suggestions for improving the Daily Spot Cotton Quotations and all of our reports are encourage
Reports are on the web at:
www. ams. usda.gov/cotton/mncs