Cotton is a fiber that is most commonly used in the production of textiles. The commodity Cotton grows in a ball around the seeds of the cotton plant. The cotton plant can be found in (sub)tropical regions in the Americas, Africa and Asia. The biggest producers of cotton are China, India and the United States, although the United States are the biggest exporter of cotton and China produces the cotton mostly for domestic use.
History of cotton
Cotton is being employed by mankind for over 7000 years. This fabric has been first found and cultivated in India and later on in Mexico. Through the years cotton would find its way to Europe and other parts of the world through exploration and increasing trading activities. During the industrial revolution, cotton would become an icon of these events. Cotton production would increase significantly during this period due to the use of new machines and the increasing demand for cheap textiles. Besides textiles, the commodity cotton has also been used in the first types of paper.
Production of the commodity cotton
The production time of cotton can take up to seven months which means it is important to plant cotton as early as possible. The first step of cotton production is planting of the cotton seeds. The seeds can be planted in so-called clumps or will be planted singularly. The seeds will be placed either in shallow or deep ground depending on the temperature of the region. Approximately nine weeks after planting the cotton balls will be fully grown and the fiber inside each cotton ball will start to ripen and push outward. After six weeks the fibers will have grown sufficiently. The next step is the harvesting where the leaves of the cotton ball are removed from the fiber and the fiber is collected. After the harvesting the fiber, the seeds and other trash is removed in a machine called a stripper. Afterwards the cotton fiber is compressed into bales for efficient storage.
The most common use of cotton is for the production of various textile products. These products range from numerous types of clothing to bath towels to bed sheets. Cotton is also used to produce yarn, which in turn can be used in knitting. Apart from the use in textiles, cotton is also being used in coffee filters, fishing nets and tents.
The seeds that are gathered during the harvest are being used to create cottonseed oil. This type of vegetable oil is mostly used in the feeding of livestock.
Cotton trading takes place mainly on the New York Mercantile Exchange (NYMEX). On this exchange the prices are based on the equilibrium of supply and demand. Future Contracts are traded daily and numerous time each day. By obtaining futures positions it is possible to minimize your price risk exposure.
Price factors of the commodity cotton
There are a number of factors which play a role in the realization of cotton prices on the futures exchange. A common price factor for many agricultural commodities is the weather. The weather can have a great impact on the harvest and subsequently the supply of cotton. Weather conditions are therefore an important factor in the pricing of cotton futures contracts. Traders must understand upcoming weather conditions in order to obtain an accurate prediction of the upcoming prices.
Grain prices can impact the price of cotton. When prices of grain, corn or soy beans grow higher than cotton, producers will be more encouraged to plant these products as they will produce a higher profit.
The rise of synthetic fabrics like polyester are influencing the demand for cotton. Due to the better quality and easy to maintain state of polyester many manufacturers are switching to this fabric, causing a significant decrease in the demand for cotton.
Cotton future contracts
Below are listed the specifications of a single Cotton Futures Contract.
|March, May, July, October, December
|Dollars per Pound
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