Texas cotton grower Brad Heffington speaks Wall Street's language of hedges, correlation charts and the like as easily as he discusses weevils and pesticides. Yet today his financial knowledge is of limited use.
Heffington's been sidelined from the cotton futures market, thanks to a surge of financial speculators into the market, which originally was designed to protect farmers like him against price shifts.
"It's something I watch but can't use anymore," Heffington said of the cotton futures market, where contracts for future delivery of 50,000 pounds of cotton are bought and sold.
Today, pension funds and Wall Street banks are pouring money into futures markets for cotton, oil, natural gas, wheat, coffee and other commodities. Such financial speculation helped drive an overheated cotton market to record levels of $2.17 a pound on March 7. Before peaking, cotton prices had risen by more than 140 percent in less than 18 months.