QUOTE AND NEWS
The Economic Times  7 hrs ago  Comment 
The decision taken at the World Trade Organisation’s 2015 Nairobi Ministerial to eliminate export subsidies on cotton will benefit Indian shipments of the crop.
The Hindu Business Line  Apr 27  Comment 
AP targets to reduce the area by one-third to 4.75 lakh ha this year
The Hindu Business Line  Apr 25  Comment 
Cotton prices remained unchanged as demand was limited at the higher level. Kapas or raw cotton too traded flat. Traders said that exporters and domestic mills’ buying were not so good because of t...
The Hindu Business Line  Apr 25  Comment 
Telangana govt’s advisory to shun cotton could bring down sales by 20-30%
The Hindu Business Line  Apr 24  Comment 
Farmers have been under tremendous financial pressure in the last four years, with monsoon & cottonseed having failed them
Southeast Farm Press  Apr 23  Comment 
Guy Collins and Keith Edmisten, NC State University Cotton Specialists As cotton seed costs are considerable, there is an incentive to reduce cotton seeding rates as low as possible without encountering yield...
The Hindu Business Line  Apr 22  Comment 
The textile spinning sector, which is showing signs of pick up, perceives that any announcement regarding extension of export benefit for cotton and yarn would definitely lift the sector out of its p...
The Hindu Business Line  Apr 22  Comment 
Cotton price remained unchanged on limited demand from exporters and domestic mills after price had gone up during this week.Gujarat Sankar-6 cotton traded at ₹34,200-34,700 per candy of 355 kg. A...
Southeast Farm Press  Apr 20  Comment 
The Turkish government released on April 16 its final decision on its anti-dumping investigation of U.S. cotton based on assertions that U.S. cotton was dumped into Turkey injuring the domestic fiber market. read more
The Hindu Business Line  Apr 19  Comment 
Recent volatility in cotton prices has kept the mill sector on an edge for some time now. But industry insiders urge its members “not to panic.”Stating that the price of the fibre has been on an uptre...




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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

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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