The Hagstrom Report

Agriculture News As It Happens


Intercontinental Exchange launches World Cotton futures contract

The U.S. Commodity Futures Trading Commission’s Agriculture Advisory Committee met September 22 to discuss speculative position limits for agricultural commodities and other agricultural market matters. From left are CFTC Commissioner Christopher Giancarlo, Chairman Timothy Massad and Commissioner Sharon Bowen; at right is Corey Claussen, CFTC director of legislative affairs. (Jerry Hagstrom/The Hagstrom Report)

In a sign of the changing times in agriculture, the Intercontinental Exchange (ICE) is officially launching the first World Cotton futures contract today.

The launch of the contract means that U.S. cotton will not no longer set the world price, but ICE officials told the Commodity Futures Trading Commission’s Agriculture Advisory Committee that it had developed the contract in reaction to customer demand because the locations of cotton production and use have changed. (See following story on the September 22 meeting.)

“The new contract is based on extensive conversations with our customers about the need for a broader price benchmark that reflects the global nature of today’s cotton markets,” ICE Futures U.S. President Benjamin Jackson said in a news release.

“We have worked closely with cotton industry participants to design a contract that complements our Cotton No. 2 contract and enhances the ability for cotton growers and consumers to efficiently manage their pricing risk.”

The World Cotton contract, which began trading using the symbol WCT Sunday at 9 p.m., prices delivery of cotton from nine countries and allows delivery in multiple locations around the world, ICE Futures U.S. said in a news release.

The new contract will provide for delivery of cotton from the United States, Australia, Brazil, India, Benin, Burkina Faso, Cameroon, Ivory Coast and Mali in exchange-licensed warehouses at specified delivery points in Malaysia, Taiwan, Australia and the United States, with the Malaysia and Taiwan locations at par and with pre-set discounts for delivery in Australia and the United States.

The first delivery month would be in May in order to give companies time to prepare for delivery.

ICE Futures said there is no direct competitor to its World Contract, but there is a Chinese cotton contract.

ICE noted to the CFTC committee that an act of Congress was needed before the World Cotton contract could be launched.

U.S. law had required that cotton tendered under any U.S.-listed futures contract to be sampled and graded by the Agriculture Department, but the new law will allow laboratories to inspect cotton at foreign ports and giving the exchange leeway in deciding how much cotton needs to be sampled when it arrives, according to an analysis by the Financial Times.

“This is a market-oriented initiative reflecting the modern realities of the global cotton market,” said Rep. Austin Scott, G-Ga., told the Financial Times. (ICE is based in Atlanta.)

Cotton of various origins will be priced at a premium or discount to U.S. cotton under the contract, The Wall Street Journal said today.