The Commodity Futures Trading Commission has launched a probe into the volume of cotton bales ordered and delivered after concerns were raised over millions of dollars lost at trading houses last year due to a squeeze.
According to the Financial Times, the US commodities regulator has launched the investigation and is interviewing cotton traders about large numbers of cotton bales that were delivered through the ICE Futures US exchange last year.
While cotton prices were dropping and orders were being cancelled, one commodity trader, Louis Dreyfus Commodities, emerged as a majority buyer of cotton futures, a contract where buyers agree to buy cotton at a predetermined price on a future delivery date, ordering 390,000 bales of cotton in May 2011 followed by 161,000 in July.
Some other market traders complained that this led to a market squeeze forcing sellers to obtain expensive cotton through exchange rather than buying cheaper cotton elsewhere.
The investigation is ongoing.