December 2, 2013
Cotton’s Hedging and Futures
a. History of the cotton market
The history of the cotton market here in N.C did not really get big until the mid-1990’s when farmers figured out they could get a better yield with cotton based upon the climate and soil types here in N.C. So the grain production fell off as people started growing cotton and liked how the market was set upon compared to the grain market when it is ever changing and hard to set a high price and never know when the grain is going to go up or down. Now in 2013 here in N.C there is still a lot of cotton acres but not as many as ten years ago based upon the ...view middle of the document...
S where that same crop is grown at. Agriculture in the U.S is one of the top industries and I think has the most hedging with products than other commodities. The commodity that has also been important to me and my background and a crop that I like to go to meetings about and learn more knowledge about the ever changing technology with this crop is cotton.
c. What kind of effect cotton has on the U.S economy
The reason in which why the cotton market is so important to the U.S economy and also the exporting of cotton to other countries and why it is valuable for the U.S to keep production of cotton in high demand is because. It appears that shifts in the demand for U.S. cotton are on the horizon. In recent years, China accounted for 30% of U.S. cotton off take (National Cotton Council, 2013). U.S. mills bought 20% of the crop, while Turkey and Mexico accounted for another 20% (National Cotton Council, 2013). All other customers combined for the remaining 30%. With China's domestic production and mill use being much closer in line with each other, it is likely that they will not need 30% of the U.S. crop (National Cotton Council, 2013). It appears that market is now shifting to other countries in Asia. After consecutive declines, cotton demand has stabilized and is expected to grow in the coming year. However, the battle for market share with manmade fibers has never been fiercer. With a recovering global economy, there is excellent potential for growth in cotton demand. However, that full potential will not be realized as long as China continues to operate their current policy in a manner that stifles cotton demand (National Cotton Council, 2013). Cotton consumed by U.S. textile mills has presented a more stable appearance over the past several months. Monthly consumption is currently running at 3.5 million bales on an annualized basis (National Cotton Council, 2013). This compares with 2.7 million bales at this time last year. For the current 2012 marketing year, U.S. mills are estimated to use 3.4 million bales. For the 2013 marketing year, a modest increase is projected with a total of 3.5 million bales used by U.S. mills (National Cotton Council, 2013). Consumption of cotton can be measured at different points along the textile supply chain. Initial demand occurs at the mill that produces yarn from cotton fiber. Final demand occurs with the consumer's purchase of finished apparel and textile products (National Cotton Council, 2013). Although purchases of finished consumer goods are generally measured in units, it is useful to convert the products into an equivalent pounds of fiber based on product weight and fiber blend.
2. Cotton and the markets
a. The Marketing of cotton and how the pool works
Cotton is a market product that changes due to several things based upon the amount of acres planted and how the crop progress thru the growing season and what is demand of cotton with the textile mills and how is over sea trading with...