Invest in cotton through trading: in brief
- The price of cotton is quoted on the ICE (formerly NYBOT) market in the United States.
- Analysing the price of cotton requires both fundamental and technical analysis
- You can invest in cotton online using ETFs
- You can also trade cotton up or down using CFDs
Demand from the textile industry worldwide.
The appearance and popularity of new textile materials (for this, you will need to follow the market trends and the major fashion designers collections).
The climatic conditions that affect the producing countries.
For the largest consumer countries that are also producers, such as China, it is important to study the difference between imports and exports.
The quality of the harvest, in terms of fibre quality, is also an important criterion.
Finally, to trade in cotton from the American agricultural sector it is also important to take into account government assistance and therefore the price that is specific to this production.
Cotton is an agricultural commodity used principally in the textile industry for the creation of material. Although the use of cotton in the textile industry has dropped from 71% to 40% since 1950 it is still a favoured material in this industry.
Concerning production, several large countries share the honour with China at the head followed closely by the United Sates, India and Pakistan. In total 30 million tons of cotton are produced each year. It is however China that produces a quarter of the global production as the market leader. This country therefore plays a primordial role in the quote of the cotton price as a commodity.
In 2011, the cotton market was virtually in short supply after several years of low prices and a fall in the area under cotton. As a result, this year's harvest was the smallest in 7 years due to poor weather conditions. China was forced to import on a massive scale, and global demand fell sharply as a result of the economic crisis, despite a fall in world stocks. As a result, the price of cotton soared on the NYLEX, reaching up to 2 dollars a pound in 2011, an increase of 100% in 5 months.
Demand then fell again, and stocks were quickly replenished, allowing prices to return to normal levels of around 80 cents per pound between 2012 and 2014, a price that fell further in 2015 to 60 cents per pound.
There are several options for investing in cotton online. The choice of one or the other of these methods that we will present here will depend mainly on your knowledge and your level of risk aversion. It is also possible to diversify your cotton investments by choosing several of these investment methods. Here are the main ways to invest in cotton online:
It is important to note that investing in cotton can be risky due to price volatility and market risks. It is therefore recommended to do thorough research and consult a financial advisor before making an investment decision.
Like all commodities, cotton is traded in the form of futures and options. It is mainly quoted on the ICE market in the United States. However, the way in which cotton prices are set does not depend solely on supply and demand, since the US market includes government support for this production sector.
This is why the prices paid to American cotton growers are often higher than those paid to other international producers. However, the US government has decided to reduce this support from 2013.
The choice of charts you use to carry out a technical analysis of the live cotton price depends on the way you want to trade it and, more specifically, the duration of your investment. You will prefer historical charts for the long term and Japanese candlesticks in minutes for the short term.
You should also feel free to use the many technical analysis tools that are usually offered free of charge by trading platforms. These may include signals or precise indicators such as technical support and resistance levels.
The price of cotton, like that of any other commodity traded on the stock market, is primarily determined by calculating the difference between the strength of demand and the strength of production. It is therefore the scarcity of this commodity that drives up its value, because the greater the demand in relation to supply, the more traders buy this asset, and vice versa when supply exceeds demand.
But other fundamental factors also influence the value of cotton by acting precisely on this difference between supply and demand.
Let us examine the two major factors that primarily influence the price of cotton, global supply and demand.
Here are the steps to follow to start trading cotton online:
19th century:
20th century:
21st century:
To better understand the recent evolution of the cotton price, here is a table of its history over the last 10 years:
| Year | Average price (cents per pound) | Change from previous year |
|---|---|---|
| 2014 | 92.5 | +12.8% |
| 2015 | 62.0 | -33.3% |
| 2016 | 60.5 | -2.4% |
| 2017 | 72.5 | +20.0% |
| 2018 | 89.0 | +22.9% |
| 2019 | 67.5 | -24.1% |
| 2020 | 69.0 | +2.2% |
| 2021 | 87.0 | +26.1% |
| 2022 | 81.5 | -6.3% |
| 2023 | 83.0 | +1.8% |
Cotton is not a commodity reserved for traders and institutional investors and individuals can also speculate on the price of this asset on the stock market. One way to do this is to use derivatives such as CFDs or Contracts for Difference, which are offered by online brokers and involve trading on whether the price of cotton will rise or fall.
Trading cotton with CFDs (Contracts for Difference) allows you to speculate on cotton price movements without owning the commodity. You buy or sell a contract based on your expectations of the market. Trading cotton requires an understanding of the cotton market, including supply and demand, factors influencing the price, and choosing a reliable broker with an intuitive platform and competitive fees.
The price of cotton on the stock market is influenced by various factors. Recently, we have seen a significant increase in the price of cotton with a 45% increase in 2022 and a ten-year high in February. This is largely due to an increase in demand but also to weather conditions that have curbed production recently.
Cotton is currently priced in different ways. Indeed, the futures prices of this commodity are still determined by auction in the basket for a part while the other part is set by computerised public auction. It should also be noted here that the computerised part is becoming increasingly important and that futures prices will also depend mainly on the type of cotton, its quality and its delivery date.
