India: Cotton traders try their hands at forward trade


Despite the sluggish demand for cotton in the international market, exporters are making an attempt at forward trading. There are reports of forward contracts taking place at Rs 35,000 to Rs 34,400 per candy (356 kg) of cotton for delivery in November. According to estimates provided by the traders, forward trading of approximately 20,000 bales has taken place. While such contracts are not registered and there is no legal back up, forward contracts are a regular trade practice, and default trade bodies also provide arbitration to sort out issues.

Last year, cotton forward contracts of around Rs 39,000 to Rs 40,000 per candy took place for Shankar 6. However, with the arrival season approaching, prices dropped to Rs 33,000 per candy. This year, traders are expecting prices to tighten further.

After burning their fingers two years ago, many ginners are not keen on forward contracts. When cotton prices were rising fast and crossed Rs 60,000 per candy in March 2010, farmers were defaulting and in turn, ginners could not honour their back-to-back contracts with exporters.

The exporters, on the other hand, taking advantage of hedging, fluctuating currencies and other intangible factors, are able to book profits.