The World Futures Contract for Cotton

Joseph J. O'Neill


 
ABSTRACT

Participants in today's cotton industry face an increasingly volatile market which creates business risk as well as uncertainty. Dramatic fluctuations in cotton prices occur due to myriad factors, ranging from weather changes in cotton-producing regions around the world to government-related activities.

In the past, the cotton #2 futures market has provided a vehicle for risk management to both individuals and institutions actively engaged in the cotton industry. By participating in this market, cotton producers, textile mills, merchants and textile manufacturers can reduce their exposure to the risks inherent in growing, shipping and spinning cotton.

However, cotton prices in the United States over the past two seasons have diverged from world prices due to U.S. shortages in supply and restrictions against importing cotton into the U.S. New York futures prices rose, while the Cotlook A Index™ price lagged. Consequently, the basis between New York futures and the Cotlook A Index™ price became unmanageable under certain market conditions. Therefore, the NYCE™ has introduced Cotlook World Cotton™ futures and options that offer viable hedging opportunities to international cotton growers, merchants, shippers and textile firms.



Reprinted from 1993 Proceedings Beltwide Cotton Conferences pp. 368 - 369
©National Cotton Council, Memphis TN

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Document last modified Sunday, Dec 6 1998