This article highlights some differences between U.S. cotton and other ag commodity markets. The subject really involves the nexus of politics and economics. There is a long history of government regulation of commodity markets. A textbook example is the Onion Futures Act of 1958 which banned trading of onion futures (and which was the basis for subsequent studies of efficient markets by Working[i] and Gray[ii]).
Our cotton example begins in 1929 when the U.S. Congress singled out cotton in a notable policy restriction. It seems that two years earlier, one of USDA’s routine monthly forecasts had projected lower cotton prices. When this forecast proved accurate, some in the cotton industry assumed that the forecast caused the price decline. This led to a political reaction where the USDA was banned from forecasting (only) cotton prices, a policy that remained in place until the 2008 Farm Bill.
Cotton was unique in dropping out of Title 1 commodity programs in the 2014 Farm Bill, only to come back in 2018 with “seed cotton” as a new, covered commodity in the Bipartisan Budget Act of 2018. Space does not allow an adequate discussion of the underlying events of that story. [READ MORE]