Cotton #2 Oct '22 (CTV22)
|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 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) posted a 3-1/2 year high of 92.95 cents per pound in February 2021 after cotton consumption rebounded faster than expected as economies worldwide reopened from the pandemic. The USDA in February projected that global 2021/22 cotton consumption would rebound by +4% yr/yr to 122 million bales, led by strong demand from China and India. Also, U.S. cotton production in 2020/21 plunged by -26.6% yr/yr to a 6-year low of 14.6 million bales due to drought, the largest year-over-year decline since 2008. Cotton prices fell to the low for 2021 of 77.12 cents per pound in March due to (1) soaring freight costs from a container ship shortage, and (2) demand concerns caused by pandemic lockdowns. Cotton prices then crept higher into Q3 on expectations for stronger Chinese cotton demand after the USDA in August projected that China's 2021/22 cotton crop would fall -9.3% yr/yr due to adverse weather in China. U.S. cotton supplies also tightened after the USDA in the August WASDE report cut its U.S. 2021/22 cotton ending stocks to 3 million bales, the smallest in 8 years. Cotton prices rallied to a 10-year high of 121.67 cents per pound in November as Cotlook in October raised its global 2021/22 cotton market deficit estimate to -207,000 metric tons from -122,000 metric tons in September. Cotton supplies remained tight as ICE-monitored cotton inventories dropped to a record low in November. Cotton prices fell back slightly in December from their 10-yer high after lower Chinese cotton demand prompted Cotlook to shift its view for the 2021/22 global cotton market to jump to a surplus of +27,000 metric tons from a projection of a deficit of -110,00 metric tons in November. Cotton prices finished 2021 up +44% yr/yr at 112.60 cents a pound.
Supply - World cotton production in 2021/22 is forecasted to increase +8.3% yr/yr to 120.957 million bales (480 pounds per bale) and remain below the 2011/12 record high of 127.244 million bales. The world's largest cotton producers are forecasted to be India with 22.7% of world production in 2021/22, China with 22.3%, the U.S. with 14.6%, Brazil with 10.9%, and Pakistan with 4.8%. World ending stocks in 2021/22 are forecasted to fall by -3.9% yr/yr to 85.006 million bales, down from the 2014/15 record high of 106.830.
The U.S. cotton crop in 2021/22 is forecasted to increase +26.7% yr/yr to 18.509 million bales and remain below the 2005/06 record high of 23.890 million bales. U.S. farmers are forecasted to harvest 9.222 million acres of cotton in 2021/22, up +19.9% yr/yr. The U.S. cotton yield in 2021/22 is forecasted to rise +5.7% yr/yr to 895 pounds per acre, but still down from the 2017/18 record high of 905 pounds per acre. The leading U.S. producing states for cotton in 2021 were Texas with 43.3% of U.S. production, Georgia with 12.8%, Arkansas with 7.1%, Mississippi with 5.2%, Missouri with 4.7%, Alabama with 4.0%, and California with 2.4%.
Demand - World cotton consumption in 2021/22 is forecasted to rise +2.9% yr/yr to a record 124.365 million bales. The largest consumers of cotton in 2021/22 are expected to be China with 31.8% of the world total, India with 20.9%, and Pakistan with 9.0%. U.S. consumption of cotton by mills in 2021/22 is expected to rise by +2.1% yr/yr to 2.579 million bales.
Trade - World exports of cotton in 2021/22 are expected to fall -4.4% yr/yr to 46.560 million bales, falling back from the record high of 48.685 million bales in 2020/21. Major world cotton importers for 2021/22 are expected to be China with 20.9% of total world imports, Bangladesh with 17.8%, Vietnam with 16.1%, Pakistan with 11.8%, and Turkey with 11.2%.
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