In order to make the futures prices more representative and not speculative, contract specification and quality standards has been modified and new cotton future contract has been launched at MCX on January 31, 2023, the ministry said in a statement. It will help in real price discovery and provide a platform for the industry to hedge their risk from future adverse price volatility. Further, farmers would also be benefitted and will have reference price while taking a decision to sell their produce in the market.
Trading in the newly launched Cotton Futures Contract has commenced at India’s Multi Commodity Exchange (MCX) from Monday after over 5 months. The ministry of textiles said that the contract is more representative and less speculative. The new contract was modified after deliberation with collaborative approach of government of India, MCX and the industry.
During cotton marketing Season 2021-22, Indian cotton prices reached peak level of more than ₹100,000 per candy of 356 kg in the month of May 2022 following unseasonal rain, speculative trading, and a global cotton shortage. The industry was raising the concern of lesser open interest and speculation through trading of cotton future contract on MCX and thereby distortion in domestic cotton prices.
The matter was raised during the second interactive meeting of Textile Advisory Group (TAG) held on July 14, 2022, as a result of which, Product Advisory Committee of MCX was re-constituted and enlarged with representation of Textile Value Chain from farmer to end users (i.e., spinning mills) to make the system more structured as per domestic market to curb the speculative trading and volatility in cotton prices. Now, Indian cotton prices are competitive and in line with global prices.
After raising such reservations, new cotton future contracts were banned at MCX in the last week of August 2022. Already launched contracts expired on their due dates. Therefore, no contract was launched in the last five months. There was no trading in cotton futures since January 2023 as last December 2022 contract was settled on the due date. The industry and market were eagerly waiting for a new cotton contract as there was no market tool for price discovery and risk hedging.
New cotton contract was named as cotton candy as its trading unit changes from bales 170 kg to candy of 356 kg. Tick size also modified from ₹10 to ₹20 per candy. Near month delivery size is changed from 85,000 bales to 2,400 candy (5,000 bales). Delivery centres were also added for smooth delivery of the commodity. Quality and delivery norms have also been modified. Minimum margin will be 8 per cent of the value of the contract. MCX has launched April, June, and August 2023 contracts on Monday. From next season onwards, there will be November, January, March, May, July, and September contracts.
Fibre2Fashion News Desk (KUL)