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Background Knowledge: Cotton Prices, Trade, Exchange(s)
Even though the Bremen Cotton Exchange still bears “Exchange” in its name, the institute has ceased trading futures of the raw material already in 1971. Commercial transactions are settled in different ways: either physically in the producing country itself or by the international commodity futures trade. Besides assessing the quality, the pricing process is a major component of the business transaction. For this purpose, cotton producers as well as cotton traders from all over the world collect information on cotton price quotations every day.
Currently, a larger uncertainty is prevailing which is substantiated by the volatility of prices. Having been quoted below 60 ct/lb, the New York cotton futures have dropped to its lowest level since March 2016, especially because of the US-Chinese trade conflict. In the light of this development it is worth to examine the various “cotton prices” that reflect the current cotton market:
The New York Cotton Futures refer to raw material that will be available in the future. A daily value is noted for each trading month of several crop seasons. Futures contracts enable cotton traders and their customers to purchase cotton at a fixed price already today, months ahead of delivery. The key objective is hedging, and not truly purchasing the raw material. It has to be taken into account that the real price development – as common in futures trading – is strongly affected by investment businesses.
The Cotlook A Index is one of the most important indices in the world. It refers to cotton from Far East that is available at near delivery dates as well as in the future. The index is an average generated of the five lowest quotations of a selection (currently eighteen) of the major globally traded Upland cottons at a defined basic quality.
The CIF Bremen Index is a price index published by the Committee for Prices Quotations of the Bremen Cotton Exchange. This index reflects the daily value of cotton considering costs of freight, insurance and shipment (CIF) for Bremen as well as the North European continent. The index is generated from the average of the five most reasonably priced quotations of various origins at a defined average quality.
Furthermore, there are regional price indices whose informative value on cotton prices often refers to a certain country only, for example the China Cotton index for China or spot prices for sales in India, Pakistan or the USA. They may have an impact on world price market developments as well.
As service, the Bremen Cotton Exchange publishes a list of up-to-date cotton prices on its website every day: