Intercontinental Exchange Group (ICE) plans to issue a new world cotton contract to reflect global prices in the fourth quarter of 2014. The new contract would trade alongside ICE's US-based cotton futures contract.
The exchange expects the new international contract to begin trading before the end of the year and have its first delivery in early to mid 2015. The exchange's current cotton contract is only for US-grown cotton, with delivery points in the US. While the US is the world's top exporter of cotton, an international contract is necessary because the US contract doesn't necessarily reflect the global cotton market.
Both the International Cotton Association, a trade group, and American Cotton Shippers Association, an industry group, are now working together on the contract. The origins of cotton that could be delivered to fulfill the futures contract include Brazil, US, Australia, India and five West African nations like Benin, Burkina Faso, Cameroon, Mali and Ivory Coast. The contract price will be based on US-origin cotton, with premiums and discounts for cotton grown in other countries.
Australia, will most likely trade at a premium, while fibers from other origins will be discounted to varying degrees. The size of a lot on the world contract will be £55,000, nearly £5,000 pounds more than the US contract. That is because cotton tends to be shipped in £55,000 containers.
