PARIS, April 8: The European Union grows less than three per cent of the world’s cotton but it may soon become home to an ambitious project aimed at stitching up a big hole in the international market for the fluffy white fibre.
European derivatives exchange Euronext is planning to launch cotton futures to give a new tool to those who currently depend on the New York Cotton Exchange (NYCE) for their hedging and speculating needs.
Cotton may be one of the world’s most widely grown crops, but traders trying to cover risk using cotton futures can only do so in New York — and that can be a problem for some.
The United States produces around 25 per cent of the world’s cotton, but the crop is so subsidised that international traders say US prices do not truly reflect those on the world market.
That’s where Euronext — formed by the merger of bourses in Amsterdam, Brussels and Paris — thinks it can make a difference.
“Our idea is to create a contract that would have a worldwide dimension with cotton produced in the main producing areas,” says Patrick Gentile, product manager at Euronext.
STITCHING UP THE HOLE: While the NYCE trades only US cotton, Euronext’s futures would be based on cotton from Benin, Burkina Faso, Ivory Coast, Mali, Togo, Australia, Kazakhstan, Turkmenistan, Uzbekistan — as well as the United States.
The merchandise would be for delivery to the ports of Abidjan, Lome, Cotonou, New Orleans, Riga, Dubai or Brisbane, meaning the planned cotton contract would be Euronext’s first to have non-European delivery ports, says Gentile.
It is also set to be Euronext’s only product quoted in US dollars and not euros, the European single currency.
Gerald Estur, from the Washington-based International Cotton Advisory Committee, says Euronext’s planned futures would meet a “blatant” need on the world’s cotton scene.
“We would benefit from a futures covering tool adapted to cotton from Africa, central Asia etc, because covering this cotton in New York is incomplete,” says Didier Mercier, director general of Paris-based Compagnie Cotonniere (Copaco).—Reuters