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  • 1.3.3-THE WORLD COTTON MARKET-INFLUENCE OF LOCATION AND QUALITY ON PRICES

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  • Influence of location and quality on prices

    Chapter 1 - The world cotton market - Cotton prices  

     
     

    Just as time affects costs, and thus prices, location and quality also affect the price received or paid for cotton. It costs money to move a bale of cotton, including the costs of placing a bale into a container at origin and then taking it out at destination, loading and unloading the container onto a ship, rail car or truck, moving the container, providing documentation, and completing financial transactions for each shipment, ensuring adherence to phytosanitary regulations and insuring against risk during movement and storage while in-transit. The costs of moving cotton can vary from a few United States cents per pound of lint for cotton moving by truck or rail a few hundred kilometres within a developed country from producing area to textile mill, or it can cost 10–15 cents per pound for cotton moving from a landlocked developing country by truck, rail and ship to an importing country in a different continent. In general, countries with direct access to ocean ports and better infrastructure have lower transportation costs than countries that are landlocked or have less developed infrastructure. In general, countries with large textile industries (China, India, Pakistan, Turkey, United States, Brazil) will tend to have lower transportation costs than countries that must export or import cotton from long distances.

    In most cases, producers or sellers pay the costs of transportation. Importers can choose from varied origins, and so mill-delivered prices for cotton of similar quality tend to be closely matched, regardless of the cost of transportation from the producing area. Producers are able to charge higher prices only to the extent that competing producers cannot supply cotton at a lower price.

    Quality differentials also affect prices for each bale of cotton. Cotton grading systems have developed over the last two centuries in each country, and in 2007 there are no truly universal, objective quality evaluation standards in the cotton industry that can be used to map a single international schedule of premiums and discounts. However, there are some basic guidelines that most people in the cotton industry understand intuitively. For instance, the market price for cotton in the extra-fine category (premium cottons from Egypt, Peru, Israel, the United States, the Sudan, China, India and other countries accounting for about 3% of world production) currently has a premium over the Cotlook A Index of about 100%; in other words, prices of extra-fine cotton are approximately double the price of average cotton. Over the last 15 years, premiums for extra-fine cotton have ranged from 35% above the Cotlook A Index to 135% above the A Index. (See figures 1.21 and 1.22.)

    1.3.3-en1

    Source: ICAC


    1.3.3-en2

    Source: ICAC

    While comparisons are not precise, it can generally be noted that prices for cotton in the fine category (cotton that is finer, longer and stronger than the world average, but not as good as extra-fine) are above the Cotlook A Index by 10%–15% in most years. Finally, cotton that is classified as coarse cotton (cotton that is shorter, rougher and weaker than average) has a discount from the Cotlook A Index of 3%–10%. Within these broad guidelines, the specific premiums and discounts for each lot of cotton bales can vary with the specific characteristics of each producing region, relative tightness of supply in each category, time of year, availability of transportation and other factors.