Cotton #2 Mar '19 (CTH19)
|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)|
|Trading 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 according to 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 is deemed to equal 480 pounds.
Cotton futures and options are traded at the Intercontinental Exchange (ICE). 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) zigzagged higher in the first half of 2018 and posted a 5-year high of 96.50 cents per pound in June. Adverse weather around the globe in 2018 reduced forecasts for global cotton production. Cotton production in China, the world's second-largest producer, was negatively impacted by lower-than-normal temperatures and excessive rains, while cotton production in the U.S., the world's third biggest producer, took a hit from several hurricanes that made landfall in the southeastern U.S. In addition, cotton production in India, the world's biggest cotton producer, fell as the USDA's FAS forecasted India's 2018/19 cotton production at -1.7% yr/yr to 28.5 mln bales after India's monsoon rains were 9% below normal. The USDA projected that global 2018/19 cotton ending stocks would drop to a 7-year low of 74.45 million bales on increased usage as the USDA projected global 2018/19 cotton use would climb to a record high 127.76 mln bales. Cotton prices tumbled into year-end and posted a 1-year low of 71.87 cents per pound in December on increased U.S. cotton acreage and the U.S.-China trade war. The USDA estimated that U.S. 2018/19 cotton acreage would rise +11.3% yr/yr to a 7-year high of 14.04 million acres. The USDA also projected that U.S. 2018/19 cotton exports would fall -2.2% yr/yr to 15.5 mln bales and that U.S. cotton ending stocks would climb +16.3 % yr/yr to an 11-year high of 5.0 million bales. Trade tensions prompted China to boost subsidies to its cotton farmers to boost domestic output and China 2018 cotton production rose +7.8% yr/yr to a 4-year high of 6.1 MMT. Cotton prices finished 2018 down -8.2% yr/yr at 72.20 cents a pound.
Supply - World cotton production in 2018/19 is forecasted to fall -4.0% yr/yr to 118.742 million bales (480 pounds per bale) remaining below the 2011/12 record high of 127.243 million bales The world's largest cotton producers were forecasted to be India with 23.2% of world production in 2018/19, China with 22.7%, the U.S. with 15.7%, Brazil with 9,3%, and Pakistan with 6.2%. World ending stocks in 2018/19 are forecasted to all -9.0% yr/yr to 73.190 million bales, farther down from the 2014/15 record high of 106.857.
The U.S. cotton crop in 2018/19 is forecasted to fall -11.2% yr/yr to 18.588 million bales, farther below the 2005-06 record high of 23.890 million bales. U.S. farmers are forecasted to harvest 10.374 million acres of cotton in 2018/19, down -6.5% yr/yr. The U.S. cotton yield in 2018/19 is forecasted to fall -5.0% yr/yr to 860 pound per acre, down from last year's record high of 905 pounds per acre. The leading U.S. producing states of cotton in 2018 were Texas with 37.8% of U.S. production, Georgia with 10.2%, Mississippi with 8.0%, Arkansas with 6.2%, California with 4.8%, Alabama with 4.7%, and Missouri with 4.6%.
Demand - World consumption of cotton in 2018/19 is forecasted to rise +1.9% yr/yr to 125.983 million bales, a new record high. However, consumption of cotton continues to move toward countries with low wages, where the raw cotton is utilized to produce textiles and other cotton products. The largest consumers of cotton in 2018/19 are expected to be China with 32.9% of the world total, India with 20.1%. and Pakistan with 8.4%. 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 2018/19 is expected to fall by -1.0% yr/yr to 3.493 million bales.
Trade - World exports of cotton in 2018/19 are expected to rise +1.8% yr/yr to 41.728 million bales, but that is still below the 2012/13 record high of 46.435 million bales. U.S. cotton exports in 2017/18 rose by +9.3% yr/yr to 16.736 million bales., The U.S. is still the world's largest cotton exporter by far and accounts for 35.9% of world cotton exports. The main destinations for U.S. exports in 2017/18 were China with 15.7% of total exports, Indonesia with 9.5%, Mexico with 5.7%, and South Korea with 3.6%. Major world cotton importers for 2018/19 are expected to be Bangladesh with 19.8% of total world imports, Vietnam with 18.5%, China with 17.1%, Indonesia with 8.9%, and Turkey with 7.1%.
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