Spread Betting on Cotton
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Cotton is a soft commodity – it is grown. It is a less common option for trading. The prices of soft commodities are more susceptible to external influences such as weather, which makes them volatile and so more interesting to trade. Demand for cotton is more closely linked to economic conditions than other agricultural products.
Cotton is priced in dollars, making the exchange and interest rates factors. The exchange rate in particular does not receive the attention it deserves. A weaker dollar generally increases the price of commodities traded in it.
Cotton can move by hundreds of points in the space of a week. It performed fantastically in 2010 but crashed spectacularly in 2011 due to problems in China and Pakistan, which are both massive producers. China is the largest determinant of the fortunes of cotton, accounting for 15 percent of global consumption this year, according to estimates by the US Department of Agriculture.
There will be many spread betting tips before reports are issued by the Department of Agriculture, as these often change the cotton market. This occurred at the start of this year, when one report forecast increased world production of cotton and declining consumption: prices fell and then rebounded.
The United States is the largest exporter of cotton in the world, and the weather in the south-western United States can alter the price of cotton. West Texas, the origin of a third of US cotton production, is in the midst of a drought.
Cotton prices spiked in March this year when India, the world’s second largest producer, banned exports of it for the second time in two years to ensure an adequate supply for domestic consumers, which are losing competitiveness to Pakistan and Bangladesh due to rising prices in India. The last ban in 2010 caused the price of cotton to reach a record high of $2.27 a pound. An outcry from Indian farmers and China, a major importer, caused the government to reverse its decision less than a week later, sending prices the other way.
Cotton’s volatility earned it the name of the “widow maker,” displacing natural gas, which had earned the title after large bets, went wrong in the 2000s. Glencore lost more than $330 million on cotton trading last year due to the volatility of prices.
This post has been provided by Cantor Index – a spread betting company that accepts spread bets on cotton.