QUOTE AND NEWS
Equitymaster  4 hrs ago  Comment 
Posted by Equitymaster        Ever since 8th November 2016, when demonetisation left Rs 500 and Rs 1,000 currency notes bereft of any value, there has been speculation about its real impact on the Indian economy. Some are of the view...
The Hindu Business Line  Nov 28  Comment 
Cotton prices remained unchanged on limited demand from domestic mills. Arrivals at Gujarat have increased as farmers are now accepting cheque payment. Traders said slow demand following by rising a...
Southeast Farm Press  Nov 28  Comment 
Georgia Cotton Commission 10th Annual Meeting will be January 25, 2017 at the University of Georgia Tifton Campus Conference Center in Tifton, Ga. read more
Southeast Farm Press  Nov 28  Comment 
Eddie McGriff, Alabama Extension Regional Agent While vast swatches of north Alabama had subpar-to-disastrous dry land corn and soybean yields, most cotton growers were harvesting one of their best cotton crops. read more
Agrimoney.com  Nov 28  Comment 
Global cotton stocks will fall less than expected, as consumption in Vietnam falls, while world production hopes have risen
GenEng News  Nov 28  Comment 
Scientists at Dartmouth's Norris Cotton Cancer Center (NCCC) say they have identified the functional role of two distinct DNA modifications in glioblastoma (GBM) tissues. The signature of one of these pattern disruptions, in particular,...
Benzinga  Nov 28  Comment 
March New York Cotton is trading at 71.36, up 0.11 cents/lb. May New York Cotton is trading at 71.95, up 0.05 cents/lb. Cotton futures are trading rangebound. Market chatter about global economic growth is making the rounds. The USDA...
The Economic Times  Nov 27  Comment 
The officials of Department of Plant Protection said that import of agri items from India through the Wagah border crossing and Karachi port and issuing permits for future imports had been halted,
The Hindu Business Line  Nov 25  Comment 
Cotton prices remained unchanged on moderate buying. The rise in arrivals restricted the price gain. Traders said that export demand was slow and domestic mills were also buying in limited quantities...
Benzinga  Nov 25  Comment 
The USDA reported today that cotton weekly export sales for the current marketing year for the period ending November 17th totaled 254,800 running bales. Sales were up 19 percent from the previous week and 52 percent from the four week...




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Cotton is a basic crop that is a major input for the textile, agriculture, and food industries. 64 percent of cotton is used for apparel, 28 percent for home furnishings, and 8 percent for industrial products. In the US, $120 billion of business revenue is stimulated by cotton.[1]

The U.S. is a major cotton producer, but its domestic textile industry is relatively small, so it exports much of the cotton it produces. In 2007, 97 percent of US net domestic consumption of cotton was from imports, even though an estimated 27 percent of those cotton goods contained US cotton.[2]

Overall, China is the largest producer and consumer of cotton, accounting for 29 percent of the world's production and 43 percent of the world's use of milled cotton in 2007. China manufactures apparel and other textile products from the milled cotton, often for export.[3] Demand in this and other emerging markets is a leading driver of cotton prices, as are seasonal growing conditions and the prices of competing crops. Higher corn and soybean prices due to the production of biofuels makes those crops more attractive to growers, displacing cotton production and driving up prices. In 2008, US cotton acres are down 30 percent, to 11 million from 15 million in 2007.[3] Demand for cottonseed, a significant byproduct of cotton production used in the food industry and for animal feed, also influences cotton prices.

The chart at left shows continuos front-month futures prices for Cotton #2 traded on the New York Board of Trade.

Prices, Tickers, and Delivery Dates

Cotton #2 is traded on the New York Board of Trade under ticker symbol CT. Futures contracts are delivered in March, May, July, October, and December of every year. (For more information on commodity tickers, check out the commodity ticker construction page.)

Higher cotton prices help producers and funds

  • Cotton farmers benefit from higher prices. However, the prices of competing crops such as corn and soybean are also very attractive and have contributed to smaller cotton production. See Factors that drive cotton prices
  • Polyester is a synthetic fiber that becomes more attractive with higher cotton prices. Polyester fiber producers include Nan Ya Plastics Corp (TPE:1303), Sarla Performance Fibers Ltd (BOM:526885), and Wellman Inc (OTC:WMANQ).

Textile manufacturers hurt by prices

  • Clothing, footwear, and industrial textile manufacturers are hurt by rising cotton prices. For example, cotton is the primary raw material for Hanesbrands, representing 6% of cost of sales, and an increase of $0.01 per pound in cotton prices translates to a $3.3 million increase in annual raw material costs.[4] However, the effect of this on company earnings is uncertain because the effect of cotton prices on industry selling prices cannot be determined.
  • In the US, 27 textile mills closed in 2007 and industry employment fell by 51,000. While higher cotton prices are not helpful, the US plant closings are mostly due to increased competition from Chinese imports.[3]

Cotton supply and demand

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Cotton prices have spiked significantly over the last 2 years, from 59.56 cents/pound in 2006 to a peak of 81.54 cents/pound in March of 2008.[5] The International Cotton Advisory Committee forecasted a season-average Cotlook A index of 79 cents per pound for 2008/09, which represents a 6 cent increase over the 2007/08 average. The price increase is due to a slight expected decline in worldwide production from 26.2 to 25.9 million tons due to competition from soybeans and grains.[2]

Global consumption is on track to exceed production in 2008/09, which would leave the world cotton stocks down by 6% to 11.3 million tons. Imports to the rapidly developing mainland China have steadily increased and is expected to drive a 5% increase in global imports in 2008/09, while imports by the rest of the world decrease.[2]

Factors that drive cotton prices

  • Grain prices: Higher grain prices make them more attractive to cotton farmers, which leads to a decrease in cotton production. U.S. farmers planted 10.54 million acres of cotton in 2007, a 30 percent decrease from the previous year. More growers planted more corn and soybeans at the expense of cotton, especially for the production of biofuels.[3]
  • Cottonseed prices: Cottonseed is a byproduct of cotton production and is used in agriculture for animal feed and in the food industry to make cottonseed oil. Cottonseed production decreased in 2007 to 6.60 million tons, from 7.35 million the previous year, which helped to drive both cottonseed and cotton prices up.[3]
  • Climate: Growing conditions vary from year to year and is a main driver for all crops, including cotton. In particular, droughts can have a devastating effect on crops and can lead to higher abandonment and prices. Nature is an unpredictable component of agriculture and the desire to smooth this risk is one of the reasons exchange traded funds exist.
  • Synthetic fabrics: Competing fibers such as polyester puts pressure on cotton demand. Many mills are shifting toward cotton/polyester blends, which are more durable and easier to maintain than pure cotton fabric. Polyester surpassed cotton as the most used fiber in 2003.[3]

Cotton Futures Contracts

References

  1. World of Cotton.
  2. 2.0 2.1 2.2 International Cotton Prices Forecast Higher in 2008/09.
  3. 3.0 3.1 3.2 3.3 3.4 3.5 The Economic Outlook for U.S. Cotton 2008.
  4. HBI 2007 Annual Report pg. 14  
  5. 5.0 5.1 National Cotton Council of America.
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