AMS publishes final rule on cotton futures classingAMS publishes final rule on cotton futures classing

USDA’s Agricultural Marketing Service (AMS) has published the final rule amending regulations to allow for the addition of an optional cotton futures classification procedure.

In response to requests from the U.S. cotton industry and the Intercontinental Exchange (ICE), AMS will offer a futures classification option whereby cotton bales may be certificated for the purpose of an exchange’s cotton futures contract using Smith-Doxey data to verify that submitted bales meet more restrictive quality requirements and age parameters established by the exchange.

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AMS anticipates the futures classification option will be available in time for the implementation of ICE’s Cotton Resolution No. 2, which is scheduled to commence with the March 2014 contract month.

Conventional procedures employed for verifying quality measurements for bales to be included in futures contracts consists of two futures classifications: 1) initial futures classification and 2) final futures classification.

AMS revised these procedures to incorporate Smith-Doxey data into the cotton futures classification process in March 2012. When verified by a futures classification, Smith-Doxey data serves as an initial futures classification with the verifying futures classification serving as a final futures classification.

The successful incorporation of Smith-Doxey data into the futures classification procedures prompted the US cotton industry and ICE to request that AMS use Smith-Doxey data to certify that bales submitted for quality verification meet more restrictive quality requirements and age parameters set by ICE for use in a cotton futures contract.

This optional procedure is referred to as the ‘‘registration option,’’ and customers choosing this option will incur a fee of $3.50.