Sayed Shoeb Pens Winning Essay for ACSA International Cotton Institute

Today, we see a lot of seed cotton being moved from Maharashtra to Gujarat in order to get that extra premium for getting labeled as a Gujarat Shankar-6. In times to come when the buyers acceptability will be based on the HVI standards and not on the type name, we might see a reduction of such movements and a more homogenous pricing system.

With the option of delivering cotton from other origins, the issue of market squeeze can be avoided. Trading multiple growths as per the current standard makes it a very good sellers’ market. However, the buyers have little to celebrate. With no choice of selecting the origin for take-up, they have no option but to take delivery of whatever growth is being put on the board. As far as the buyer is concerned, this will be a vital question, since the quality that is being delivered on the board will be a mix of contaminated and contamination-free cotton.

Countries like India and Africa do not have machine-picked cotton, and this brings in a huge disparity in terms of quality as compared to Australian and Brazilian cotton. The Indian and African cotton will be traded at a discount, but the buyer will always be doubtful about the quality until he receives it. Moreover, the price gap is sometimes as wide as 10 cents between Australian and Indian cotton.

A mill which needs contamination-free Australian cotton will have nothing to do with the Indian cotton in case the seller delivers low-priced Indian cotton just because it was the cheapest available tenderable cotton at that time. This is not beneficial for the mills. At this point of time it seems fair to mills if only Brazilian and Australian cotton were selected for delivery to the exchange, as it would give more confidence to the mill buyers and would lead to an increased participation from their end. However, it is yet to be seen as to how the whole system develops before giving a verdict.

Trading Indian cotton on the international exchange comes with its own set of caveats. To date, the Cotton No. 2 contract has been a U.S.-based contract, and the USDA has taken great measures in assessing the quality standards that have been delivered. One hundred percent bale-by-bale HVI assures the delivery of right quality of every bale of cotton.

The Indian market, however, has not yet matured to that level. A two percent manual sampling is still the norm for physical trade. ACE came up with a set of rules for the sampling process of cotton bales for delivery, wherein the sample size is five percent. The homogeneity of the remaining 95 percent remains a question for which the seller has to give a legally binding indemnity to the warehouse at the time of deposit of cotton bales.

However, ICE cannot rely on such measures while trading internationally. Moreover, there is no standardization of bale size, weight and packaging globally. This needs to be addressed by the ICE, since every country has its own set of standards.

With the Indian and African cotton comes the problem of contamination and extraneous matters. The Growth PND needs to take these into account. A 100 percent HVI for delivery of Indian crop could make it very costly for Indian merchants and might not be a very good proposition. In case the HVI needs to be done in Malaysia, it would be very risky for the seller to ship the cotton all the way to Malaysia and, in case the bales get rejected, it would be an additional loss to the merchant. Therefore, it becomes very important to devise a system wherein the HVI testing for futures delivery could be done at the origin.

This brings in the question of tagging the bales for delivery and making sure that the ones that are getting tagged and tested are the ones that are actually getting delivered. ICE needs to develop a robust delivery and testing system in line with the ones that are being practiced in the U.S. like the EWR to make the contract a success.

An origin-based delivery might be helpful as far as HVI testing and tagging are concerned, but possible export bans by the Indian government render this option unviable. Therefore, more discussion needs to go into the delivery system before adapting one.

To conclude, the industry cheers and welcomes the new cotton contract, but only time will tell whether this contract is a success or proves to be another lost cause. The market participants do understand the importance of a world contract, and ICE needs to collaborate and understand the requirements of each and every participant. They also need to make sure that it is supported by large hedgers and, at the same time, should not suck out the liquidity from the Cotton No. 2 contract.

The key to a successful contract is to garner liquidity within the early stages of its launch, and to garner liquidity means to have the approval of the complete supply chain from the grower to the end user.

World cotton contract is the change that industry needs today, and I hope that ICE is successful in its endeavor.

 

Topics: ,

Leave a Reply

One comment on “Sayed Shoeb Pens Winning Essay for ACSA International Cotton Institute

  1. Excellent write up. A very comprehensive essay on necessity world cotton contract and it’s possible short comings.

International Stories
International

Indian Government to Sell Cotton Stock

July 18, 2016

The Government of India has directed the Cotton Corporation of India to sell its entire cotton balance stock to offset the abnormal price rise.

International

New Leadership, Export Program for Indian Textiles

July 6, 2016

India’s textiles industry is benefitting from newly-established leadership and a program designed to increase garment exports.

International

Indian Association Wants Free Trade for Cotton

June 27, 2016

The Cotton Association of India is urging the Government of Pakistan not to support the call for an export ban on cotton by the All Pakistan Textile Mills Association.

International

Update on Indian Cotton Textile Sector

June 15, 2016

By Dr. Seshadri Ramkumar The Indian government implemented its largest ever minimum support price (MSP) scheme through Cotton Corporation of

International

Jack McCarty Named ICAC Researcher of the Year

May 31, 2016

Dr. Jack C. McCarty of Mississippi State University was named Researcher of the Year for 2016 by the International Cotton Advisory Committee.

International

New Cotton Traceability System Reaches Final Testing

May 9, 2016

An inexpensive traceability system to prove the authenticity of organic and other niche cottons could be available by the end of the year, says ICA Bremen.

International

No Export Subsidies for Indian Cotton

April 27, 2016

According to the Government of India, the country is not entitled to export subsidies for its cotton.

Around The Gin
Product News

Indigo Launches Water Efficiency Product for Cotton

July 26, 2016

Boston-based research firm Indigo has launched its first commercial product – Indigo Cotton – which helps improve the cotton plant’s water use efficiency.

Product News

Enlist Technology Provides Tolerance to Three Key Herbicides

July 13, 2016

The Enlist weed control system will give growers the ability to use three modes of action postemergence in both cotton and soybeans.

Product News

Providing Upland Varieties with Acala-like Quality

July 13, 2016

PhytoGen offers growers several upland cotton varieties with Acala-like fiber quality for added premiums and higher profitability.

Product News

PhytoGen Names Winners in Best Yielder Club Sweepstakes

June 29, 2016

A North Carolina cotton grower was named grand prize winner in the 2016 PhytoGen Best Yielder Club sweepstakes.

Product News

Monsanto Donates Research Center to Local Foundation

June 27, 2016

Monsanto Company has donated its 150-acre Leland Agronomy Center to The B.F. Smith Foundation, a nonprofit organization in the Mississippi Delta.

Product News

Record Yields Set by 2015 FiberMax One Ton Club

May 4, 2016

The 127 members who qualified for the FiberMax One Ton Club pushed cotton yields and quality to higher levels in 2015.

Product News

Meister Media Worldwide Website Relaunches With New Resources

April 22, 2016

Meister Media Worldwide — publisher of Cotton Grower magazine – has relaunched its corporate website, highlighting information and services available from one of agriculture’s leading media companies.

Product News

ReinCloud Promises Remote Control

April 18, 2016

New software set to combine irrigation management and data collection – all in the palm of your hand.

Latest News
International

Indian Government to Sell Cotton Stock

July 18, 2016

The Government of India has directed the Cotton Corporation of India to sell its entire cotton balance stock to offset the abnormal price rise.

International

Indian Spinning Association Works to Calm Current Cotton Situation

July 15, 2016

The Southern India Mills’ Association has called for calmness among spinners in India in the wake of the country’s downward cotton production estimate.

International

Indian Cotton Production to Decline

July 14, 2016

The Cotton Advisory Board of India has revised its estimate for this year’s cotton supply and demand situation in India, placing production at its lowest total in five years.

International

New Leadership, Export Program for Indian Textiles

July 6, 2016

India’s textiles industry is benefitting from newly-established leadership and a program designed to increase garment exports.

International

Indian Association Wants Free Trade for Cotton

June 27, 2016

The Cotton Association of India is urging the Government of Pakistan not to support the call for an export ban on cotton by the All Pakistan Textile Mills Association.

International

Update on Indian Cotton Textile Sector

June 15, 2016

By Dr. Seshadri Ramkumar The Indian government implemented its largest ever minimum support price (MSP) scheme through Cotton Corporation of

International

Jack McCarty Named ICAC Researcher of the Year

May 31, 2016

Dr. Jack C. McCarty of Mississippi State University was named Researcher of the Year for 2016 by the International Cotton Advisory Committee.

International

New Cotton Traceability System Reaches Final Testing

May 9, 2016

An inexpensive traceability system to prove the authenticity of organic and other niche cottons could be available by the end of the year, says ICA Bremen.

International

No Export Subsidies for Indian Cotton

April 27, 2016

According to the Government of India, the country is not entitled to export subsidies for its cotton.

International

Little Activity on New World Cotton Contract

April 4, 2016

The ICE Futures world cotton contract is off to a slow start.

International

India Taking Proactive Measures to Combat Whitefly

March 30, 2016

As planting season approaches, the government of India is taking proactive measures to combat likely white fly infestations in the country's cotton-producing Northern States.

International

Better Cotton Initiative Joins ISEAL Alliance

March 24, 2016

The Better Cotton Initiative has been accepted as a full member of the ISEAL Alliance by achieving full compliance with the organization’s standard-setting code.

International

India to Produce Less Cotton This Season

February 29, 2016

India is expected to produce about 3 million bales less cotton for the season ending in September 2016, compared to a year ago.

International

China Losing Top Cotton Importer Status

February 3, 2016

China has been surpassed by Vietnam as the world’s top cotton importer.

International

China Considering Sale from Cotton Reserves

January 18, 2016

China’s government is reportedly considering plans to sell some of its cotton stockpile, a move that could move Chinese domestic prices lower and reduce import demand.