Cotton waits to be harvested at the Santana Farm in Luis Eduardo Magalhaes, Brazil, on Thursday, July 15, 2010. Cotton rose to the highest price in almost three weeks as the dollar's decline enhanced the appeal of some commodities. Photographer: Adriano Machado/Bloomberg

Cotton grown on five continents will underpin a new futures market for the fibre as the US loses its central role as a source of the commodity.

“World cotton” futures are set to list in the second half of 2014 on IntercontinentalExchange, Ben Jackson, president of the company’s US futures division, said in an interview. ICE’s existing benchmark cotton futures, which date to 1870, are priced exclusively against US-grown crops.

Members of two industry groups, the American Cotton Shippers Association and the Liverpool-based International Cotton Association, have agreed the origins and delivery points of the new market, the subject of heated debate for years, executives said.

Cotton merchants have sometimes scrambled to find exchange-approved US bales to fulfil futures delivery obligations. In early 2011, prices reached records above $2 per pound amid a perceived cotton shortage, leading to losses, defaults and lawsuits that still cast a shadow over the industry. ICE May cotton was 91.98 cents/lb early on Monday.

By accepting delivery of cotton cultivated in more places, traders hope to avoid squeezes and better track prices in the global marketplace. Futures are contracts that require delivery of a commodity by a certain date.

ICE said cotton from Australia, Brazil, India, the US and, in west Africa, Benin, Burkina Faso, Cameroon, Ivory Coast and Mali will be eligible for deliveries against the new world contract. All the countries are net cotton exporters.

The US’s share of global cotton production has slipped to 11 per cent from 19 per cent in the past decade as more of its farmers plant soyabeans. Countries such as India, meanwhile, expanded harvests using genetically modified seeds.

“[Cotton] acreage in the US has been dwindling over the last few years,” said Bill May, American Cotton Shippers Association president. “There were some within the trade – not all, but some – that felt it was time to try to get another contract with other growths involved.”

The new world contract will feature delivery points in the US, Australia and Malaysia. One strength of the latter country is its proximity to yarn mills in China and Vietnam, industry executives said.

The international cotton market is led by a handful of commodities trading houses such as Louis Dreyfus Commodities, Cargill, Glencore Xstrata, Noble Group and Olam.

The industry took years to agree the outlines of the new cotton futures amid disputes over the impact on futures trading volumes and where to set prices.

ICE will continue to list its benchmark US contract alongside the world contract.

China’s Zhengzhou Commodity Exchange and the Multi Commodity Exchange of India also offer cotton futures, but they are not widely traded by international companies.

Get alerts on Emerging market investing when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article