Long before the cotton gin, natural fibers have been spun into clothing for human beings. Cotton and other natural fibers were not the first to be used as clothing for people, as the typical garment was animal hide, but it was not long into human history where we find proof that it became a vital resource.
From evidence of the plant fibers found in caves in Mexico, we know that cotton has been used by humans as long as 7,000 years ago. It was not until the world changed forever with the Industrial Revolution that cotton finally began to be an important resource for the textile industry.
With the advent of the cotton gin, came many industries creating a global demand for cotton. There was finally a way to harvest and produce the mass quantities the world needed in order to support the cultivation of a multi-billion dollar crop. More than 80 countries participate in the cotton cultivation industry, particularly the Upland type of cotton.
History of Trading
Cotton grows in the tropical and subtropical regions of the world. China and India, together make up about half of the cotton production globally. China is also the world’s largest consumer and importer of the fiber. They produce about 33 million bales a year and import 17% of the world’s consumption.
Cotton has been traded on the New York Mercantile Exchange traditionally but has recently been available for trading on the CME Globex trading platform. The commodity code is TT and the size of each contract is 50,000 pounds.
Benefits of Trading Cotton
Hedging against inflation and ensuring your purchasing power are reasons to include cotton futures in your portfolio. Diversification is always an excellent strategy.
The speculative nature of cotton futures resides on a few other dynamics. The fact that China stockpiles cotton, tends to drive up the price and reduce the supply. It is highly likely this will continue and a great gamble to take when considering cotton.
There are two other reasons that cotton makes a great commodity to hold, increasing global economic health and betting on higher oil prices. If the overall economy is good, cotton tends to stay priced well. If the prices in oil tend to rise, cotton will as well due to its dependency on petroleum for the polyester industry as well as for the farmer’s machines.
Disadvantages of Trading Cotton
If the global supply of cotton continues to increase, prices will decrease. In conjunction, the global stockpiles have been steadily emptied causing supply to increase as well. China has been forced to eliminate a large portion of its polyester manufacturing due to pollution problems.
How to Begin Trading
If you are planning to start trading in cotton contracts, get to know the market. It is smart to become educated about cotton cultivation, as well as its nature in the markets.
To begin trading, you can always consult a professional and get them to include cotton in your portfolio. If you feel apt, you may also find quite a few sites online that can handle your trades as well. There are also groups of like-minded investors in your local area that may prove to be a treasure trove of information, safeguarding you from unnecessary loss.