ICAC: 'Speculation not Driving Price'; Offers Seminar on Volatility

By Jim.Robinson|February 2, 2011

Unlike the huge price run-up the industry experienced during the early part of 2008, speculators are not the driving force behind today’s record-high prices, according to Terry Townsend, executive director of the International Cotton Advisory Committee (ICAC).

The core problem, of course, is that this year’s production hasn’t been able to keep pace with global consumption, largely due to inclement weather in some of the world’s top producers, such as Pakistan, India and China. That has driven down already-depleted reserves and forced textile manufacturers to scramble for any cotton they can find and has caused friction in many countries between cotton exporters and domestic textile industries.

“There’s a very high correlation between cash and futures prices,” Townsend said during a United Nations commodity conference in Geneva. “The cotton market is functioning. In the current situation, prices have risen and speculative open interest has also risen–but so have commercial open positions. Futures and cash track together and speculative activity does not seem to be driving the current situation. It is being driven by strong demand and fundamentals.”

The recession had taken a big bite out of consumption in recent years but demand for cotton was surprisingly robust in the 2009/10 season. The likely result will be a significant increase in production next year, which will drive prices back down, kicking off a downward trend that should continue into the near future. Nonetheless, current prices are so high that even a significant drop would still result in an attractive situation for growers.

ICAC, recognizing that the current market environment can be very perilous for those who don’t have a lot of experience, is offering a seminar to mitigate the risk. The provisional agenda for the seminar, “Cotton Price Volatility: Transparency of Cotton Supply and Use and Trade Policies,” is nearly complete. It will be held on February 8, 2011, at 9:00 AM at The World Bank, 1818 H Street, NW, Washington DC, room MC13-121. There is no charge for the seminar, but security requirements are such that advance registration is necessary. Visitors can register and view the provisional agenda at www.ICAC.org.