Cotton #2 Oct '21 (CTV21)
|Tick Size||0.01 cents per pound ($5.00 per contract)|
|Daily Limit||3 - 7 cents ($1,500 - $3,500 per contract)|
|Contract Size||50,000 pounds (approximately 100 bales)|
|Months||Mar, May, Jul, Oct, Dec (H, K, N, V, Z)|
|Trading Hours||8:00p.m. - 1:20p.m. (Settles 1:15p.m.) CST|
|Value of One Futures Unit||$500|
|Value of One Options Unit||$500|
|Last Trading Day||Seventeen business days from end of spot month|
Cotton is a natural vegetable fiber that comes from small trees and shrubs of a genus belonging to the mallow family, one of which is the common American Upland cotton plant. Cotton has been used in India for at least the last 5,000 years and probably much longer, and was also used by the ancient Chinese, Egyptians, and North and South Americans. Cotton was one of the earliest crops grown by European settlers in the U.S.
Cotton requires a long growing season, plenty of sunshine and water during the growing season, and then dry weather for harvesting. In the United States, the Cotton Belt stretches from northern Florida to North Carolina and westward to California. In the U.S., planting time varies from the beginning of February in Southern Texas to the beginning of June in the northern sections of the Cotton Belt. The flower bud of the plant blossoms and develops into an oval boll that splits open at maturity. At maturity, cotton is most vulnerable to damage from wind and rain. Approximately 95% of the cotton in the U.S. is now harvested mechanically with spindle-type pickers or strippers and then sent off to cotton gins for processing. There it is dried, cleaned, separated, and packed into bales.
Cotton is used in a wide range of products, from clothing to home furnishings to medical products. The value of cotton is determined by the staple, grade, and character of each bale. Staple refers to short, medium, long, or extra-long fiber length, with medium staple accounting for about 70% of all U.S. cotton. Grade refers to the color, brightness, and amount of foreign matter and is established by the U.S. Department of Agriculture. Character refers to the fiber's diameter, strength, body, maturity (ratio of mature to immature fibers), uniformity, and smoothness. Cotton is the fifth leading cash crop in the U.S. and is one of the nation's principal agricultural exports. The weight of cotton is typically measured in terms of a "bale," which equals 480 pounds.
Cotton futures and options are traded at the ICE Futures U.S. exchange. Cotton futures are also traded on the Bolsa de Mercadorias & Futuros (BM&F). Cotton yarn futures are traded on the Central Japan Commodity Exchange (CCOM) and the Osaka Mercantile Exchange (OME). The New York Cotton Exchange's futures contract calls for the delivery of 50,000 pounds net weight (approximately 100 bales) of No. 2 cotton with a quality rating of Strict Low Middling and a staple length of 1-and-2/32 inch. Delivery points include Texas (Galveston and Houston), New Orleans, Memphis, and Greenville/Spartanburg in South Carolina.
Prices - ICE cotton futures prices (Barchart.com symbol CT) pushed higher in Q1- 2019 and posted the high for the year at 79.31 cents per pound in April 2019. Lower cotton output in India, the world's second-largest-cotton producer, lifted prices after the Cotton Association of India in April cut its India 2018/19 cotton production estimate to 32.1 mln bales, down -14% yr/yr as dry weather reduced yields. Cotton prices then trended lower into August when they plunged to a 10-1/2 year low of 56.19 cents per pound on ramped-up trade tensions between the U.S. and China. China's Commerce Ministry asked its state-owned enterprises in August to suspend purchases of U.S. agricultural products when President Trump threatened to add an extra 10% tariff on another $300 billion of Chinese imports. The escalation of the trade war led China to boost its 2019 cotton purchases from Brazil to 23% of its total cotton imports from a previous 6% average. The USDA also forecasted that U.S. 2019/20 cotton ending stocks would rise to an 11-year high of 5.5 mln bales and researcher Cotlook forecast a global 2019/20 cotton surplus of 389,000 MT, up from a 2018/19 surplus of 173,000 MT. However, trade tensions eased and cotton prices ratcheted higher into year-end after the U.S. and China in December 2019 agreed on a phase-one trade deal where China agreed to boost its purchases of U.S. agricultural products. Also, cotton production declined in China, now the world's biggest cotton producer. China's 2019 cotton production fell -3.5% yr/yr to a 2-year low of 5.89 MMT. In addition, the USDA estimated that Chinese 2019/20 cotton ending stocks would fall to an 8-year low of 7.238 mln bales. Cotton prices finished 2019 down -4.4% yr/yr at 69.05 cents a pound.
Supply - World cotton production in 2019/20 is forecasted to rise +2.0% yr/yr to 120.479 million bales (480 pounds per bale) but remain below the 2011/12 record high of 127.243 million bales. The world's largest cotton producers are forecasted to be India with 24.5% of world production in 2019/20, China with 22.6%, the U.S. with 16.7%, Brazil with 10.4%, and Pakistan with 5.1%. World ending stocks in 2019/20 are forecasted to rise +0.1% yr/yr to 79.592 million bales, but still down from the 2014/15 record high of 106.857.
The U.S. cotton crop in 2018/19 rose +10.0% yr/yr to 20.206 million bales, but remained below the 2005/06 record high of 23.890 million bales. U.S. farmers are forecasted to harvest 12.509 million acres of cotton in 2019/20, up +22.6% yr/yr. The U.S. cotton yield in 2019/20 is forecasted to fall -10.3% yr/yr to 775 pounds per acre, down from the 2017/18 record high of 905 pounds per acre. The leading U.S. producing states for cotton in 2019 were Texas with 32.8% of U.S. production, Georgia with 10.2%, Mississippi with 7.90%, Arkansas with 6.9%, Alabama with 5.4%, and Missouri with 5.0%, and California with 4.3%.
Demand - World consumption of cotton in 2019/20 is forecasted to rise +0.1% yr/yr to 120.405 million bales, below the 2017/18 record high of 122.878. The largest consumers of cotton in 2019/20 are expected to be China with 32.0% of the world total, India with 20.3%, and Pakistan with 8.8%. U.S. consumption of cotton cloth has fallen sharply by almost half in the past decade due to the movement of the textile industry out of the U.S. to low-wage foreign countries. U.S. consumption of cotton by mills in 2019/20 is expected to rise by +2.5% yr/yr to 3.057 million bales.
Trade - World exports of cotton in 2019/20 are expected to rise +6.1% yr/yr to 43.848 million bales, but that is still below the 2012/13 record high of 46.435 million bales. Major world cotton importers for 2019/20 are expected to be China with 19.4% of total world imports, Bangladesh with 16.4%, Vietnam with 16.2%, Pakistan with 9.8%, and Turkey with 9.4%.
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