Cotton Trading Manual

Contents......Page 6
Contributors......Page 12
Preface......Page 20
Index......Page 26
Part 1: The cotton trade: history and background......Page 50
1 History of the cotton trade from origin to the twentieth century*......Page 52
Early history......Page 56
Competition between cotton and wool and emergence of the West......Page 58
Rise of the US and dominance of England......Page 64
Globalization......Page 70
Statistical appendix......Page 73
2 The cotton trade today......Page 78
Introduction to the cotton trade......Page 80
Trends in world fiber consumption......Page 82
The international cotton trade......Page 83
Who are cotton merchants?......Page 86
What is the added value cotton merchants provide?......Page 87
Information gathering......Page 89
Forecasting cotton prices......Page 91
Pricing of cotton......Page 92
Hedging and the New York futures market......Page 93
E-trade......Page 95
Positions......Page 96
Summary......Page 97
Part 2: The global picture......Page 100
3 The cotton environment: macro issues......Page 102
The economic importance of cotton......Page 104
Market forces drive prices lower......Page 105
Competing crops......Page 108
Competing fibers......Page 109
Government policies affecting cotton......Page 111
Environmental issues......Page 115
4 Trends in the world cotton market......Page 120
Fundamental trends and structural change......Page 122
The dominance of the US......Page 125
Importance of China (Mainland)......Page 131
Role of Australia, West Africa and Central Asia......Page 134
Conclusion......Page 136
5 Cotton agronomy and production......Page 138
Background......Page 140
Cotton improvement......Page 143
Cotton agronomy......Page 147
Plant growth regulators......Page 150
Irrigation practices......Page 152
Crop protection......Page 153
Harvesting and initial processing......Page 156
Ecological considerations......Page 159
National programs to limit/control cotton production vs yield as a potential ceiling on cotton production......Page 162
6 Cotton consumption......Page 164
Cotton cultivation and consumption over the years......Page 166
Components of cotton consumption......Page 167
Current advances and promising technology......Page 174
Promotion efforts around the world......Page 178
Summary......Page 180
Part 3: The physical trade......Page 182
7 Cotton as an industrial raw material......Page 184
Major uses of cotton......Page 187
Major determinants of cotton’s market value......Page 188
Conclusion......Page 198
8 Cotton quality......Page 200
Physical characteristics and properties of cotton......Page 204
Varieties and types of cotton......Page 231
Impact of production and ginning conditions on quality......Page 237
Contamination......Page 246
Classing and grading......Page 248
Acknowledgments......Page 257
9 Cotton pricing......Page 260
Factors affecting cotton prices......Page 263
Cotton pricing arrangements......Page 271
Sources of price information and price predictions......Page 276
Summary and conclusions......Page 280
Part 4: Derivatives......Page 282
10 The New York Board of Trade®......Page 284
Futures and options contracts......Page 286
The Certificate System......Page 287
Development of the NYCE®......Page 288
The current cotton contract and futures market......Page 291
Conclusion......Page 293
Appendix......Page 295
11 Cotton futures and options as hedging tools......Page 300
Origins of trading......Page 305
Why hedge?......Page 306
Options......Page 308
Who hedges?......Page 309
Summary......Page 317
12 Over-the-counter derivatives......Page 318
Features of the global cotton markets and their impact on OTC derivatives......Page 320
A typical risk management problem in raw cotton......Page 322
How OTC instruments work in practice......Page 324
OTC and exchange-traded instruments compared......Page 329
Potential difficulties with OTC instruments......Page 334
Postscript: risk management using OTC instruments in the developing world......Page 336
13 Technical trading......Page 338
Combining technical and fundamental aspects......Page 342
Candlestick theory......Page 344
Traditional methods......Page 347
The open......Page 351
Much left out . . .......Page 354
Conclusion......Page 355
Part 5: Administration and management......Page 358
14 Cotton controlling......Page 360
Sampling......Page 362
Classing......Page 364
Weighing......Page 365
Surveys......Page 366
Conclusion......Page 367
15 Freight and insurance......Page 368
Freight......Page 370
Insurance......Page 375
16 Payments and documents......Page 380
Letters of credit......Page 382
17 Taxation, accounting, finance and risk management......Page 386
Accounting......Page 388
Finance......Page 389
Risk management......Page 390
18 Contracts and arbitration......Page 394
Cotton sales contracts......Page 397
Sanctity of contracts......Page 399
General principles of arbitration......Page 400
Arbitration in cotton trade......Page 401
Quality disputes and technical disputes......Page 404
Appeal......Page 406
Defaults and sanctions......Page 407
Part 6: References......Page 410
Part 7: Appendices......Page 426
Appendix 1: Pricing and risk management glossary......Page 428
Appendix 2: International cotton organizations and associations......Page 440
Appendix 3: Cotton trading organizations......Page 456
Appendix 4: The rise and fall of cotton futures exchanges......Page 462
Appendix 5: The increasing role of cotton exchanges in China......Page 476
Appendix 6: Cotton promotion......Page 482
Appendix 7: The enforceability of arbitration awards......Page 492
Appendix 8: World cotton supply and use......Page 504
Appendix 9: Conversion factors......Page 510