facebook_pixel

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

Kai Hughes Named ICAC Executive Director

July 5, 2017

Kai Hughes has been named the new Executive Director of the International Cotton Advisory Committee.

International

International Cotton Leader Showcases Innovations

July 12, 2017

Cotton Incorporated’s Kater Hake urged India producers to find new applications and functionalities for cotton and textile production.

International

Indian Textile Industry Aims to Reach $650 Billion by 2025

July 5, 2017

India’s Prime Minister has urged the country’s textiles sector to reach $650 billion by 2025.

International

Collective Effort Needed to Advance Cotton Industry

May 5, 2017

The cotton industry needs a collective effort by all of its stakeholders to advance.

International

Register Now for ACSA International Cotton Institute

April 12, 2017

This summer, some of cotton’s young minds will gather to learn business details at the ACSA International Cotton Institute.

International

Cotton Industry Veterans Launch New Commodities Firm

April 11, 2017

Three veteran analysts and traders have combined their collective 60+ years of cotton industry experience to form the Rose Commodity Group.

International

Global Cotton Contract All Hope, No Action?

April 10, 2017

The ICE Global Cotton Futures Contract is fighting for market traction, with no significant trading volume since June 2016.

Around The Gin
Product News

Protect Cotton Potential from Weeds, Worms and Diseases

July 12, 2017

Southeast cotton producers say latest technologies from PhytoGen help protect yield and quality.

Product News

Monsanto “Troubled” by Arkansas Dicamba Decision

June 26, 2017

Monsanto has weighed in on the Arkansas Plant Board’s proposed ban of dicamba use in the state.

Product News

Drexel Adds Two Regional Sales Reps

June 16, 2017

Kyle Herring and David Davis have joined Drexel Chemical Company as regional sales representatives.

Product News

Dow AgroSciences Launching Enlist Corn in 2018

June 16, 2017

Following the launch of Enlist cotton, Dow AgroSciences will make Enlist corn commercially available for 2018 after receiving Chinese import approvals.

Product News

Transform Earns Section 18 Exemptions for Cotton, Sorghum

May 4, 2017

Transform WG insecticide has received Section 18 emergency use exemptions for use in cotton and sorghum in select states for the 2017 production season.

Product News

EPA Approves Monsanto’s NemaStrike Technology

May 2, 2017

The EPA has issued registration for tioxazafen, a new nematicide from Monsanto that will be branded as NemaStrike Technology for nematode control and yield protection in cotton, corn and soybeans.

Product News

Indigo Partners Launched for In-Field Technology Testing

April 25, 2017

Indigo is launching Indigo Partners, a collaboration of 25 U.S. growers and agronomic experts to test agricultural technologies – including Indigo’s microbial seed treatments – during 2017.

Product News

UPI Adds New Herbicide Products

April 14, 2017

UPI has added two new herbicides to its portfolio of high quality crop protection products for the U.S.

Latest News
International

International Cotton Leader Showcases Innovations

July 12, 2017

Cotton Incorporated’s Kater Hake urged India producers to find new applications and functionalities for cotton and textile production.

International

Kai Hughes Named ICAC Executive Director

July 5, 2017

Kai Hughes has been named the new Executive Director of the International Cotton Advisory Committee.

International

Indian Textile Industry Aims to Reach $650 Billion by 2025

July 5, 2017

India’s Prime Minister has urged the country’s textiles sector to reach $650 billion by 2025.

International

Indian Company Debuts Cotton for Technical Textiles

June 22, 2017

A company based in South India has developed mechanically-processed cotton varieties suitable for use in absorbent technical textiles products.

International

India Expects 20% More Cotton in 2017/18

May 10, 2017

India’s cotton crop for the season beginning in October 2017 may see up to a 20% percent increase in production.

International

Collective Effort Needed to Advance Cotton Industry

May 5, 2017

The cotton industry needs a collective effort by all of its stakeholders to advance.

International

Register Now for ACSA International Cotton Institute

April 12, 2017

This summer, some of cotton’s young minds will gather to learn business details at the ACSA International Cotton Institute.

International

Cotton Industry Veterans Launch New Commodities Firm

April 11, 2017

Three veteran analysts and traders have combined their collective 60+ years of cotton industry experience to form the Rose Commodity Group.

International

Global Cotton Contract All Hope, No Action?

April 10, 2017

The ICE Global Cotton Futures Contract is fighting for market traction, with no significant trading volume since June 2016.

International

Indian Cotton Situation Currently Stable

March 17, 2017

The cotton situation in India from both producers’ and users’ points of view seems to be stable.

International

Enrollment Open for Texas International Cotton School

February 28, 2017

Registration is open for the 37th session of the Texas International Cotton School, scheduled for August 7-17 in Lubbock.

International

Indian Cotton Consumption to Increase Slightly

February 22, 2017

The Cotton Association of India now expects domestic consumption and imports of cotton to be higher than originally estimated.

International

Innovations in Nonwovens Focus of International Conference

February 22, 2017

The Technical Association of Pulp and Paper Industry will hold its Innovative Nonwovens Conference (NETInc) April 23-26 in Minneapolis, MN.

International

Indian Cotton Crop Estimated at 34.1 Million Bales

January 24, 2017

India is estimated to produce 34.1 million cotton bales during the season ending September 2017.

International

Steady Rise in Indian Cotton Prices

January 23, 2017

While global cotton production is increasing, the cotton situation in India is getting serious attention due to a steady rise in prices.