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Commodity Trading: Cotton Futures

Demand / Consumption Considerations

Cotton represents approximately 30 percent of the United States fiber market. The bulk of the Cotton produced in the world is used in the manufacturing of clothing, followed by household goods such as linen, upholstery, drapery and carpeting. The demand for Cotton is greatly influenced by consumer's tastes. The general public's attitude towards competing fibers, such as polyester and rayon, greatly affect the demand for Cotton.

World Wide Cotton Considerations

The United States government introduced procedures in the 1985 Farm Bill to make U.S. Cotton more competitive worldwide by allowing Cotton farmers to borrow against crops and repay the loans at a discount to the average world price at the time they market their product. Changes to this legislation could have dramatic effects on the available supply as well as the demand for worldwide Cotton. The United States is the second largest producing nation, behind China. China, though a major producer of Cotton, tends to consume most of its Cotton domestically. In fact, in most years China is a net importer of Cotton due to its blossoming textile industry. China’s true effects on Cotton prices tends more towards its importing than its production, though its own domestic production is probably the single greatest factor in the amount of Cotton it imports (exports). India, too, is a major importer and exporter of Cotton. With India venturing into more manufacturing and high tech businesses, look for that country to export more Cotton over the next decade, as it uses its agricultural prowess to generate hard currency. Pakistan and the Former Soviet Union states (FSU-12) tend more towards export. Since this region has been strife with political uncertainty in recent years, it is hard to ascertain the shape of these countries in the future. If the distribution problems and political unrest can be resolved in these regions, look for them to rival India in importance for Cotton and other agricultural production.

SPONSORED BY:

Commodity Trader's Almanac 2008
Scott W. Barrie
Best Price $26.37
or Buy New $26.37

Disclosure of Risk: The risk of loss in trading futures and options can be substantial; therefore, only genuine risk funds should be used. Futures and options ARE not suitable investments for all individuals, and individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option would result in a futures position.

SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST 15 YEARS. THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS. NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.