Strength in Numbers
March 12, 2010 | GLOBAL COTTON PRODUCTION 2009/10: 102.743 MILLION 480-LB. BALES |
|
| China | 31,500 |
| India | 24,250 |
| United States | 12,496 |
| Pakistan | 9,400 |
| Brazil | 5,400 |
| Uzbekistan | 4,400 |
| Australia | 1,800 |
| Turkey | 1,700 |
| Turkmenistan | 1,100 |
| Rest of World | 10,697 |
| GLOBAL COTTON CONSUMPTION 2009/10: 113.518 MILLION 480-LB. Bales |
|
| China | 46,250 |
| India | 18,500 |
| Pakistan | 12,000 |
| Turkey | 5,100 |
| Brazil | 4,200 |
| Bangladesh | 4,000 |
| United States | 3,400 |
| Indonesia | 2,050 |
| Mexico | 1,900 |
| Thailand | 1,700 |
| Vietnam | 1,200 |
| Korea, South | 1,000 |
| Rest of World | 12,218 |
What a lousy way to start a new millennium. The decade that began with Y2K concerns and the bursting of the dot-com bubble has stayed on an equally unpleasant path for the duration.
Cotton’s own bubble of 2008 leaves behind an industry forever changed. I get tired of hearing people repeat Benjamin Disraeli’s comments regarding change and its inevitable and constant nature, but I do have to admit that nobody knows more about change today than a cotton trader.
Just look at the change. There has been a generational shift in the location of cotton consumption that has consolidated sell-side risk. Technology has introduced an unprecedented per acre explosion in yield and quality. India is a major exporter. Texas is the new San Joaquin Valley. The Memphis territory has formally signed a deal to join the grain belt. There is no more New York Cotton Exchange where cotton is traded via open outcry and governed by its users. Counterparty risk has become more and more centralized by region and nation. The last 18 months have seen a dramatic concentration of trading. As merchants, we are getting paid to manage risk and that is only getting more difficult.
A New Landscape
Trade associations, longtime service providers to this industry, are faced with a landscape that was previously beyond our imagination. Membership is shrinking and relocating. Budgets are in a flux due to fluctuations in acres and exports. Yet, these associations and the work they do are more essential than ever. Trade participants must work together to help them maintain relevance. Budgets and membership pools no longer allow for duplication of efforts and, as the trend towards concentration of trading continues, trade associations must be bound to follow. Players new and old deserve and need a seat at the table and must be accommodated.
As they always have, cotton and textiles will continue to chase a competitively priced labor environment. China, India and Pakistan will represent 65 to 70 percent of world consumption. Roll the rest of the consumption in Southeast Asia in with the aforementioned markets and consumption is more isolated than ever before. This creates and represents tremendous risk for traders.
As counterparty risk grows, increased cooperation between buyers and sellers becomes a must. We as traders and as associations must pursue every effort to promote contract sanctity with just and effective processes for dispute resolution. Cotton Council International (CCI), with participation from ACSA and Amcot, held seminars in Vietnam and Indonesia this past July to educate local mills on the fundamentals of cotton purchasing as well as the International Cotton Association (ICA) arbitration process for dispute resolution. Previous seminars have been held in other markets, and are always well attended.
The Power of Technology
Technology has forever changed production. Volumes of cotton never imagined are being produced on less and less acreage due to increases in yield. Pakistan borders on self-sufficiency and India and Brazil, previously importers, are now two of the world’s largest exporters. Interruptions to supply represent tremendous risk to merchants and mills worldwide and stand to create previously unseen divergence between futures prices and physical prices. Convergence has to be maintained as a part of price discovery. We again must look at opportunities to support a world contract where deliverable stocks are centralized worldwide away from the point of production or at least consigned to independent, stable environments.
Trade associations and trade participants need to work with futures exchanges, government and non-government organizations to protect the interests of the trade as a whole and open access to cotton inventories for export and/or domestic consumption.
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