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You are here: Home / Potpourri / 5 Important Words For Cotton Marketing

5 Important Words For Cotton Marketing

5 Important Words For Cotton Marketing
1. Futures Price
A futures price is generally referred to as the current price of a particular futures contract.It is the price someone is willing to pay for a commodity, of a certain grade, to be delivered to at a certain point, at some future date.

This is the price most commodities are based on – because a futures contract is tradeable.

While most contracts are not delivered on, the fact that they can be delivered gives them their value.

2. Cash, or Spot, Price
A cash, or spot price, is usually referred to as the current price someone is willing to give for a particular commodity, of a certain grade, at a particular location, right now.

This price may change based on the grade of the commodity, where the commodity is located, and what hour it is.

3. Basis
The basis is generally referred to as the difference in the futures price and the cash price.

Cash Price – Futures Price = Basis

The difference between Cash and Futures Prices (the Basis) comes from quality, transportation, and storage.

For example, the reason you are not getting the futures price for your cotton can be answered by 3 points:

1. Futures prices are based on X grade of cotton – Is your cotton that grade?
2. Futures prices are based on cotton delivered to Y location – Is your cotton in that location?
3. Futures prices are based on cotton delivered at a certain date (range) – Is it that date? And what will you do with your cotton until that date?

4. Loan Value
Loan value is easy. Based on the grade of your cotton, it is the value the government is willing to pay you to put your cotton into the federal loan program.

This is great if you need the money. Just don’t forget about storage and interest charges.

5. Gross Premium
In most discussions about cotton, the Gross Premium refers to the price bid for your cotton above the loan value.

Gross Premium = Cash Price – Loan Value

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Filed Under: PotpourriTagged With: #Cotton, #CottonMarketing

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