There’s a new cotton trading tool in town, and observers are wondering whether it will eclipse the old New York Cotton Exchange Cotton No. 2 contract at some point.
The Intercontinental Exchange or ICE was scheduled to begin trading its new world cotton contract today. The contract will price delivery of multiple origins and allow delivery in multiple locations around the world.
“Our customers told us they want a futures contract that acts as the broader price benchmark for world cotton,” says ICE Futures U.S. President Ben Jackson. “It makes sense. An international cotton contract reflects the global nature of today’s cotton market.”
The new world contract will trade alongside ICE’s No. 2 cotton contract, which has been the primary trading tool for the U.S. cotton industry for decades. The No. 2 contract only has delivery points in the U.S., which has become something of an anomaly since U.S. farmers now grow only 11 percent of the world’s cotton.
As late as 2003-2004, the U.S. accounted for 19 percent of the world's cotton production and 41 percent of global cotton exports. Ten years later in 2013-2014, the U.S. accounted for only 11 percent of world cotton production and 27 percent of cotton exports.
ICE officials say the new contract allows delivery of cotton from origins that collectively represent 73 percent of world cotton exports.
“We have a history of evolving our products to meet the changing needs of the trade,” says ICE’s Jackson. “Because of that history, our customers have come to rely on our markets to provide holistic hedging solutions.
“Our Cotton No. 2 contract offers regional hedging across the U.S., which is the world’s top exporter of cotton. Now we’ll have two contracts trading side by side – one that tracks the top country for cotton exportation and one that tracks the global cotton market.”
Based on input from market participants including the American Cotton Shippers Association and the International Cotton Association, the current draft contract terms include:
- Physical delivery at expiration
- Delivery of multiple origins, including Brazil, Australia, the United States, India and West Africa
- Delivery at both origin and Asian destination delivery points.
“This contract will give cotton producers, merchants, spinners and mills an enhanced ability to manage their risk,” Jackson says. “We’re grateful for the customer feedback that drove the design of our world cotton futures contract and look forward to listing the contract later this year.”
For more information on the new contract, click on