A new global cotton futures contract set to be launched next week, could lead to American cotton losing it place as the sole pricing bellwether for cotton around the world. The new contract, which will trade under the symbol WCT, begins trading on the ICE Futures US exchange on Sunday alongside the US “Cotton No. 2” contract – a physically settled contract for US origin cotton that has long provided the only hedging option for cotton traders. While cotton has had a long-standing spot at the center of the global textiles industry, the last decade has seen a pronounced shift in the commodity’s production and exportation. In 2003/2004, the US accounted for 19 per cent of the world’s cotton production and 41 per cent of global cotton exports. Just ten years later in 2013/2014, the US accounted for only 11 per cent of world cotton production and 27 per cent of the product’s exports – a 42 per cent and 34 per cent drop respectively. And cotton hedgers have noticed, ICE said in a press release. “Our customers told us they want a futures contract that acts as the broader price benchmark for world cotton,” says ICE Futures US President Ben Jackson. “It makes sense. An international cotton contract allowing delivery of multiple points of origins in multiple locations reflects the global nature of today’s cotton market and will enhance the ability of cotton market participants to hedge in a global market.” “In response to the need for a better hedging mechanism, we’ve developed a new contract that allows delivery of cotton from origins that collectively represent 73 per cent of world cotton exports.” Jackson said the new world cotton contract is not likely to replace the US contract, but rather it will have a “smaller, complementary role”. Under the contract, cotton of various origins will be priced at a premium or discount to US cotton. In addition to US delivery points, this new world contract also allows delivery in Australia, Malaysia and Taiwan for cotton from the US, Australia, Brazil, India, Benin, Burkina Faso, Cameroon, Ivory Coast and Mali. The big textile mills are in India, Pakistan, Indonesia, and Bangladesh. In the physical market, cotton traders are transacting in these same locations. “We selected these delivery points and origins because these are the most common origins of cotton that are sent to the Far East for the production of clothing and yarn,” said Jackson. ICE successfully pushed to change a 99-year-old law so that international graders could check that cotton meets USDA standards and to allow cotton to be delivered by multiple methods. The first physical delivery month for the contract will be May 2016, Jackson said, to allow time for logistical operations to get set up at various delivery points.
