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  • 1.4.1-THE WORLD COTTON MARKET-A BRIEF DESCRIPTION

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  • A brief description

    Chapter 1 - The world cotton market - The Cotlook Indices 

     
     

    In 1966, the forerunner of what is now the Cotlook A Index was created, in order to address a simple question: what is the world price of cotton and how can its fluctuation be measured? New York futures was then, and remains to this day, an extremely important price indicator and instrument of price discovery. However, only United States cotton can be delivered against the New York futures contract – hence the desire to establish a global price indicator that could take account of the prices of non-United States cottons.
     


    The method of calculating the Cotlook A Index is simple and transparent. The quotations are based on the concept of the representative, competitive offering price for a ‘basket’ of cottons most commonly traded internationally. Those quotations refer to a common quality, contractual and geographical basis. The Index on a given day is the average of the cheapest five quotations from the selection. This has proved an effective way of identifying those growths that are the most competitive, and thus most representative of the market (see figure 1.33).


    1.4.1-en 

    Source: Cotlook

    The base quality of the A Index is middling 1–3/32". The terms quoted are cost and freight, payment by letter of credit at sight, and including 1% agent’s commission. Since 1 August 2004, the geographical basis of the quotations used in the A Index has been the Far East. The destinations taken into consideration include all of the major ports for which no significant freight surcharges exist.

    The Cotlook A (NE) Index and the Cotlook B (NE) Index continue to employ the former geographical basis, North Europe. The terms quoted are cost, insurance and freight (CIF). The B Index (introduced in 1972) refers to quotations for cottons typically used for spinning coarse count yarns.