What Market Fundamentals Can Affect The Cotton Futures?
Seasonally, the highest prices for cotton futures normally occur between March and July. The lowest
prices typically occur between September and November. When you are considering a trade
in the cotton #2 market some of the basic fundamentals that you should consider are:
1. The relative price of competing crops. Farmers are going to plant what they
feel will offer them the best return on their investment. If soybean prices are high, and cotton prices are low, they will
plant more soybeans, and vice versa. Therefore, by looking at the relative price of competing crops you can attempt to estimate
prospective plantings acreage which will affect supply.
2. The relative
price of synthetic fibers that are petroleum based. Textile manufactures are going to use fibers that will offer them
the best return on their investment. If synthetic fiber prices (polyester, rayon, or nylon) are high compared to natural fibers
(cotton) they will use more cotton, and vice versa. Therefore, by looking at the relative price of competing fibers you can
attempt to estimate end usage which will affect demand.
3. The price of the
dollar and it's effect on exports. Recently the U.S. dollar has been weak against other major world currencies. This
has helped U.S. exporters by making it’s goods and services more competitive abroad. It is important to follow the price
of the U.S. dollar because of the impact that it has on exports.
4. Asia
Asia has emerged as an economic powerhouse that affects all commodity prices. It is especially important to look
at Asian supply and demand when trading the cotton market. China is by far the largest consumer of cotton. China is the largest
producer of cotton. India is the second largest producer of cotton. The United States is the third largest producer of cotton.
5. Weather Most of the cotton produced in the U.S. is produced along the Mississippi delta.
If there is extreme dry conditions during the summer or flooding of the Mississippi river cotton prices could move higher.
6. USDA Crop Reports The USDA publishes a weekly crop report called the Weekly Cotton Market
review that may be helpful in your research and trading of cotton futures and cotton options. This report summarizes all the
USDA's information on cotton, including world prices, export sales, crop conditions, weather and more.
These are just some basic fundamentals to keep in mind when you are considering a trade in the cotton
#2 market. There are many other factors such as weather that were not discussed above that can have a major impact on it’s
price movement. Therefore, before opening up a commodity account to trade cotton #2 you should consult with a licensed
commodity broker that follows the cotton #2 market to discuss investment strategies.
