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What Moves the Cotton Futures Price?

cotton price study

Agricultural commodity such as cotton could easily be termed as one of the first international currencies of exchange before the creation of paper currencies.

This crop is grown in many parts of the world. However as the demand and supply ratio skewed drastically over the years, cotton futures price reached historical high of USD 212.70 on March 2011 from its record low of USD 25.33 in November 1970.

As one of the civilization’s oldest commercial activities, cotton futures require attention of agricultural researchers to discover new cotton alternatives to prevent its further inflation.

Daily Cotton Prices (ICE)

Cotton Futures Price Affects Economy

Cotton futures price fluctuations can make the economy of any country or an entire region tumble. This explains its importance as a fundamental economic component in world economic development.

Although many countries are involved in production, top producers of 2010-11 as per statistics, available via fundamental analysis of cotton market, shows China (produces about 26% of total) topping the list followed by India, U.S and Pakistan.

Major consumers are China again, consuming around 40% of total production, followed by India and Pakistan. Thus, even though China produces maximum amount compared to others, when it comes to importing cotton, it joins the list of European Commission, Indonesia, Mexico, Thailand as one of the major importers.

Though United States is not in the topmost position in the list of producers, it contributes along with Russia, Australia and European Commission, as one of the leading exporters of cotton commodity.

cotton point and figure chart

Cotton Production

There are various factors which affect anticipated or estimated production. Drastic change in weather condition, crop disease and drought are the main causes of slump in the production. Based on the production and demand, cotton commodities future markets function on the price risk involved.

Cotton futures is basically about cotton that will be available at some time in the future and is based on standard contracts to deliver at a predetermined quantity and quality. Cotton price is negotiated openly in the market place.

Cotton Consumption

Even though China cotton exports are extremely low compared to other exporters, its demand is huge and this influences cotton prices. United States is also one of the big consumers of cotton, requiring it in clothing and other accessories. The majority of the countries consume in large quantities, creating a huge demand for cotton.

When the cotton supply does not become proportional to its demand, it results in corollary effect on cotton futures market.

Prior to civil war, cotton was one of the leading commodities export of United States.  The war affected its production drastically, creating a cotton famine. Due to limited yield, cotton price soared sky high.

ICE Futures US which was previously known as ‘The New York Board of Trade’ or NYBOT is a wholly known subsidiary of Intercontinental Exchange or ICE Exchange, and it represents an international premier marketplace for cotton futures and the central pricing mechanism.

Curbing Cotton Futures Price

Hopefully, with the help of advanced technology, cotton’s production could be made at par with its demand. When that happened,  the current inflation of cotton futures price could surely be curbed to a large extent.

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