What Market Fundamentals Can
Affect The Cotton Futures?
Cotton
can be a very volitile market. 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.
