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

Reinhart Named New ICA President

October 25, 2016

The International Cotton Association named its 2016-17 leadership team – headed by President Jürg Reinhart – during the organization’s annual general meeting in Liverpool.

International

Indian Cotton Association Opposes Stockpiling Program

October 27, 2016

The Cotton Association of India is opposing the creation of a cotton stockpiling program for the country.

International

India: Higher Production on Less Acreage as New Season Begins

October 25, 2016

India’s Cotton Advisory Board is estimating 35.1 million bales of cotton production in the country during the new growing season that began October 1.

International

Next Year’s Indian Cotton Crop to Remain Flat

August 30, 2016

The Indian cotton crop for the next season beginning in October is expected to remain at the same level as the current year.

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.

Around The Gin
Product News

Enlist Duo Herbicide Registered for Use on Enlist Cotton

January 13, 2017

The U.S. EPA has registered Enlist Duo herbicide for use on Enlist cotton varieties, beginning in 2017.

Product News

Data Show Yield Gains from Indigo Cotton in 2016

January 9, 2017

Data collected from 2016 trials show that Indigo Cotton – a seed treatment based on naturally occurring, in-plant microbes to help increase water use efficiency – led to yield improvements on testing acres, including an 11% average yield increase in West Texas.

Product News

FiberMax and Stoneville Release New Varieties for 2017

January 9, 2017

Cotton growers searching to match the right variety the right field now have two new FiberMax varieties and two new Stoneville varieties to consider for 2017.

Product News

PhytoGen Rolls Out Seven New Enlist Varieties for 2017

January 5, 2017

PhytoGen is releasing seven new cotton varieties with the Enlist cotton trait and WideStrike 3 Insect Protection for the 2017 growing season.

Product News

Do You Qualify for the Stoneville Legacy Club?

January 3, 2017

Signup is now open for the new Stoneville Legacy Club, celebrating both the rich history of Stoneville and the generational wisdom of the growers who make 3-plus bales.

Product News

FiberMax Celebrates Growers Who Maximize Dryland Production

December 30, 2016

The new FiberMax Maximizer Club celebrates growers who produce great dryland cotton yields, and signup for the club is now open.

Product News

EPA Registers Engenia Herbicide from BASF

December 21, 2016

The EPA has registered Engenia herbicide for control of more than 200 broadleaf weeds, including glyphosate-resistant weeds, in dicamba-tolerant cotton and soybeans.

Product News

Growers Impressed with First PhytoGen WideStrike 3 Enlist Variety

December 19, 2016

The first growers to plant PhytoGen brand PHY 490 W3FE say the germplasm and technology combination helped them work smarter and increase cotton production.

Latest News
International

Indian Cotton Association Opposes Stockpiling Program

October 27, 2016

The Cotton Association of India is opposing the creation of a cotton stockpiling program for the country.

International

India: Higher Production on Less Acreage as New Season Begins

October 25, 2016

India’s Cotton Advisory Board is estimating 35.1 million bales of cotton production in the country during the new growing season that began October 1.

International

Reinhart Named New ICA President

October 25, 2016

The International Cotton Association named its 2016-17 leadership team – headed by President Jürg Reinhart – during the organization’s annual general meeting in Liverpool.

International

Could Blockchain Transform International Cotton Trade?

October 24, 2016

A recent cotton shipment processed and executed using blockchain – the technology that drives bitcoin – could represent a big breakthrough for international cotton trade.

International

Indian Textile Industry Seeks Cotton Stability Support

October 3, 2016

The Indian textile industry has asked the government to provide a support mechanism to counter high volatility in cotton prices.

International

Next Year’s Indian Cotton Crop to Remain Flat

August 30, 2016

The Indian cotton crop for the next season beginning in October is expected to remain at the same level as the current year.

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.