Cotton

Cotton plant commodity
Cotton has been cultivated for more than 7,000 years, making it one of the world’s oldest commodities. However, cotton trade as such did not begin until the late 19th century. Today, cotton is one of the top-ten most traded commodities in the world.

Basic facts about trading cotton as a commodity

Cotton is traded at two of the most important stock exchanges in the United States: the New York Mercantile Exchange and the New York Board of Trade. Futures contracts dates are identical at both stock exchanges, happening primarily in March, May, July, October, and December. Cotton is also a tradable commodity in Brazil, Pakistan, China, and India.

Although initially the largest cotton-producing countries were in Asia, the 19th century saw the emergence of the United States as a major cotton producer at global level. Today, the United States are among the world’s top-three producers, only preceded by China and India.

Traders must be aware of the key elements that can affect the prices of cotton in the market. These elements include governmental subsidies (extremely common in the United States), water shortages brought about by global warming, and whether manual or mechanical labour is employed in its production and harvest.

Trading cotton as a commodity: future predictions

As of 2011, the global cotton production was estimated at 25 million tonnes, which generate revenues of nearly $30 million per year.

The effects of the 2003 cotton dispute between Brazil and the United States are still being felt in the cotton market. It is believed that the large amounts of subsidies given to local US producers are hindering the growth of production values elsewhere, particularly in Central Asia, Africa, and Brazil, where potential annual growth is estimated at 13 per cent.

A ruling against the United States made the future of those local subsidies uncertain, so traders must be aware of the possibility that other countries may emerge as cotton-producing leaders within the next 10 years.