The cotton leading market

Pages: 5 (1204 mots) Publié le: 16 mars 2011
The cotton leading market
The physical market
(*the quantity of cotton is here expressed in millions of tons.)
We have to analyze the various countries or actors involved in such a market. The China is the biggest importer of cotton in the world, followed closely by Bangladesh and Turkey. In 2005/2006, the country imported about 4200 (*) before knowing a decrease of the importation due to thefinancial crisis. Indeed, Chinese textile workers had to reduce their demand due to the fact that they had more difficulties to sell their clothes or made of cotton products abroad. However, in 2009, worldwide cotton demand grew up from various countries that made the prices going up. The cotton imports were from 6582 to 7329 between 2009 and 2010.
USA is the biggest exporter in the world.However, its exports decreased beyond the years (from 3821 to 2395 between 2005 and 2009). This is mainly due to the fact that the United States of America decided to turn to more profitable activity, giving up investments into some large cotton production branches. The second larger exporter in the world, India, is so close to become the first exporter in the world. Its exportation doubled in 5years, from 751 in 2005 to 1437 in 2010. India is a perfect place to produce cotton, because of its large landscapes, its sunlight days, and moreover the abundance of rain at some particular periods. Others emerging countries such as Uzbekistan (which is the third exporter in the world with 871 of cotton exported in 2010) develop their cotton exports and make its home production take an essential roleinto their economic growth. Cotton is not only kind of easy to produce in large quantity (enabling thus large economy of scale) but faces a sustainable worldwide demand, which attracts investors as well as government subsidies in quantity. Cotton exports in 2010 represented 7329 (?).

The financial market
Tools and institutions have been created in order to enable investors to speculate on thecotton prices. First of all, the products have to be evaluated in function of their physical features. For that, we created two indices that are used on the New-York mercantile exchange market: COTLOOK A and COTLOOK B. The Cotlook A indice evaluates the average of the five lowest quotations of the 19 origins from the middling silk cotton fibers. The Cotlook B indice evaluates the average of thethree quotations of the 9 origins from short silk cotton fibers. The cotton market is extremely volatile and so often quite complicated to forecast properly on a long term basis. That is why contracts are often agreed on a short term basis (2 to 4 months). Finally, we can say that the cotton market is an atypical market. Indeed, investments on the market will differ because of the differentgovernmental supports provided. For instance, France and USA farmers get much more subsidies than others in poorer countries. So, it is really important to differentiate the various markets involved in the cotton trade.
The prices variation
Various factors make the cotton prices going up or down. First of all, the climatic conditions are a determinant factor. Without good climatic conditions (sun andrain), there are not good harvests. If there are not good harvests, the supply decreases, and the prices go up. On another hand, the cotton market has to count on investments in order to produce more efficiently. The more investments you get then higher will be the prices. Here too, the prices will be different in function of if we are on a developed market (such as France) or emerging market.Then, some subsidies are provided by government such as India in order to sustain the demand by keeping the prices low. Finally, we can speak of the quotas politic adopted towards China between January and June 2005. Therefore, at this period, European Union deleted quotas that limited Chinese textile production imports. It led to a huge Chinese textile outputs exports to European Union countries....
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