Cotton grown in five continents will now be listed on a new futures market as the US loses its central role as a source of the commodity. World cotton futures will be listed on Intercontinental Exchange (ICE), in the second half of 2014. ICE’s existing benchmark cotton futures, which dates back to 1870, is priced exclusively against US-grown crops.
Members of two industry groups, the American Cotton Shippers Association and the Liverpool-based International Cotton Association, have also reached a consensus on the origins and delivery points of the new market. In early 2011, prices reached record above 2 dollars per pound amid a perceived cotton shortage, leading to losses, defaults and lawsuits that continue to have an impact over the industry. ICE May cotton was 91.98 cents/lb early this week.
By accepting delivery of cotton cultivated in more places, traders hope to avoid squeezes and better track prices in the global marketplace. Futures are contracts that require delivery of a commodity by a certain date. Cotton from Australia, Brazil, India, the US and, West Africa, Benin, Burkina Faso, Cameroon, Ivory Coast and Mali will now be eligible for deliveries against the new world contract. All these countries are net cotton exporters.
The new world contract will showcase delivery points in the US, Australia and Malaysia, since it is close to yarn mills in China and Vietnam. The international cotton market is led by commodities trading houses such as Louis Dreyfus Commodities, Cargill, Glencore Xstrata, Noble Group and Olam. ICE will continue to list its benchmark US contract alongside the world contract.
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