With the launch of a new global cotton futures contract soon, US cotton stands to lose its place as the sole pricing leader for cotton across the globe. The new contract begins trading on ICE Futures US exchange alongside the US ‘Cotton No. 2’ contract and will trade under the symbol WCT. The ‘Cotton No. 2’ contract is a physically settled contract for US origin cotton that has long provided the only hedging option for cotton traders.

India, Brazil, and Australia have emerged significant competitors in recent years investing in production while fewer US farmers plant cotton, though the US is still the world’s top exporter of the fibre. Benjamin Jackson, President and Chief Operating Officer of ICE Futures US, said that the new world cotton contract is not likely to replace the US contract, but would have a ‘smaller, complementary role’. Cotton of various origins will be priced at a premium or discount to US cotton under the contract.

The new world contract also allows delivery in Australia, Malaysia and Taiwan for cotton from the US, Australia, Brazil, India, Benin, Burkina Faso, Cameroon, Ivory Coast and Mali apart from US delivery points. According to ICE, collectively, those origins represent 73 per cent of world cotton exports.

The US accounted for 21 percent of the world’s cotton production and 39 percent of exports ten years ago. The US is expected to drop to 12 percent of cotton production and 30 percent of exports this year. The big textile mills are in India, Pakistan, Indonesia, and Bangladesh and in the physical market, cotton traders are transacting in these same locations.