Historical cotton futures prices have exhibited a significant degree of volatility during times of economic turbulence.
Historical Importance Of Cotton
Dating back from as early as the Fifth Century, B.C., cotton has been cultivated for its fiber to manufacture thread for producing cloth in as widely diverse geographic locations as Mexico, Pakistan, Iran (Persia), Peru, and China.
It is a cornerstone of the textile industry and cotton traders are able to buy and sell futures contracts in the United States on the New York Mercantile Exchange (NYMEX) for delivery in March, May, July, October and December under the symbol, “TT”.
Under the symbol “CT”, Cotton #2 Futures Contracts are traded on the New York Board of Trade (NYBOT) for delivery in March, May, July, October and December.
As cotton is so essential to the textile industry for making clothing and other cloth products, analysts consider it a major commodity that reflects economic health, due to cotton comprising such a large part of retail consumption.
Cotton’s Largest Importers And Exporters
According to National Cotton Council of America statistics, the top ten cotton producing nations are: 1) China, 2) India, 3) USA, 4) Pakistan, 5) Brazil, 6) Uzbekistan, 7) Australia, 8)Turkey, 9) Turkmenistan, 10) Greece. However, China’s domestic markets account for the majority of that nation’s cotton production.
The leading cotton exporting nations are: 1) The USA, 2) India, 3) Brazil, 4) Australia, and 5) Uzbekistan. The primary cotton importing nations are: 1) South Korea, 2) Taiwan, 3) Russia, 4) Hong Kong, and 5) Japan.
Historical Cotton Futures Prices Affected By US Dollar
As the world’s leading cotton exporter, the USA’s currency strength and inflation fears can affect the price of cotton futures in ways that may have little to do with overall global supply and demand.
Additionally, as a consumer driven commodity, demand can also anticipate supply, which can also accelerate the volatility in cotton futures prices in either direction. Unlike food commodities, cotton, if successfully harvested after dealing with insect pests and other agricultural hurdles, can be stored for long periods if kept within temperature and humidity ranges that will prevent mold infestation and rotting.
However, cotton competes commercially with other fabrics, both natural and artificial, and can be susceptible to fashion trends and other demand influences that are outside the conventional ones that affect food and energy, for example.
Looking Beyond Historical Cotton Futures Prices
In a 2011 cotton futures chart, the aforementioned volatility is clearly demonstrated. Beginning in the fourth quarter of 2010, cotton futures prices soared due to a perfect storm scenario: weakness in the US dollar, inflationary fears, and anticipated increased demand from China, which would make it import more cotton to meet their growing population’s needs.
Going into the end of Spring, cotton futures prices crashed almost as precipitously as they rose, with close to 90% of the price appreciation from 2010 wiped out. Due to internal factors, Chinese and Pakistan use came in at 7 million tons lower than projected, which started a downward price spiral. Production in India, Greece, Turkey and Africa increased greater than expected, further increasing supply.
The pile on continued with the S&P downgrade of US debt and the European bailout crisis, which created more panic and perceived economic instability in industrialized Western nations.
As prospective cotton futures traders assess and analyze current trends, one must always bear in mind that the supply side can do a part to reverse the recent downturn. As the amount of usable farmland is not expanding, depressed cotton prices will eventually reach a level where farmers have greater incentive to plant alternate crops that will yield better returns.
This production decision will affect cotton supply so that it can catch up to better balance with global demand.
|Standard Cotton Contract|
|Per Contract Size||50,000 pounds net weight|
|Price Quotation||Cents and hundredths of a cent per pound|
|Minimum Price Fluctuation||1/100 of a cent (one “point”) per pound equivalent to $5.00 per contract.|
|Termination of Trading||Trading terminates seventeen business days from end of spot month.|