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Cotton, an agricultural product comes from the
fiber available in a fluffy boll that grows on
cotton plant after blossoming. The cotton plant
needs semi-arid soil and dry moisture condition
to grow. The importance of cloth in people's
lives come right after food and traditionally
cloth is produced with cotton fiber. It is not
known when people started using cloth but the
demand of cloth has been increasing day by day
with civilization and increase of
 human
population. As a result of development of
science & technology, a part of cloth now a days
is being produced from man-made fiber such as
Polyester, Viscose, Nylon, Rayon, Acrylic, etc.
But more than 80% of cloth is still produced
using cotton fiber. Cloth produced using cotton
fiber is comfortable to wear compared to the
cloth produced using man-made fiber. Although
cotton is an agricultural product, it is widely
known as 'White Gold' considering its color,
texture & importance. More than 50 countries of
the world have been growing raw cotton, but the
bulk supply comes from few countries such as
USA, China, India, Pakistan, Central Asia and
West Africa. The volume of production depends on
weather conditions, market demand, price,
carry-forward stock positions, etc. The forecast
of supply and demand of cotton for 2004-05 shows
the volume.
The forecast indicate that there will be an over
production compared to forecasted consumption
resulting in increase of end stock by more than
6.0 million bales. This is an indication that
price of raw cotton will come down and in fact
it did come down from USC 85/lb to USC 56/lb.
However, the forecasted production may change at
any time due to damage of crops by weather,
insects, etc. and in that case the price of raw
cotton will increase.
The production volume of raw cotton for last 5
(five) years shows variation in supply.
Although there is ups and down in production of
cotton from year to year, the overall
consumption of cotton have been showing steady
growth trend.
Some countries produce cotton but are involved
in both exports & import of cotton. This is done
because the quality of domestic products does
not match to the quality of cotton needed by
their mills.
 Since
cotton is an agricultural product, its quality
depends on weather conditions, region of growth,
quality of seeds and mode of harvesting &
ginning. Cotton is picked from the plant after
blossoming of the fluffy boll. The harvesting is
done both picking by hand as well as picking by
machine. The quality of manually picked cotton
is better than
 machine
picked cotton. However, the cost of hand picking
is high especially in a country where labour
cost is high. The modes of ginning also affect
the quality of cotton. High speed ginning cotton
have more neps than low speed ginning. The
quality of cotton is mainly determined by the
classer by checking - (a) Staple length, (b)
Micronaire, (c) Strength & (d) Grade. Nowadays,
various machines such as Stelometer, Fibeograph,
Uster-Afis, Stickey Thermo, Uster-HVI, etc. are
used to check the quality parameters of cotton
The quality parameter should be taken into to
consideration to achieve the type & quality of
yarn to be produced. Some of the quality para-meter
also affects the spinning result. The staple
length of cotton is measured by inch. The
available staple length of cotton are (a)
1-1/32” and below, (b) 1-1/16”, (c) 1-3/32”, (d)
1-1/8”, (e) 1-5/32” and (f) 1-7/16” and above.
Higher staple length cotton has higher slender
ratio and short fiber cotton has poor slender
ratio. The higher slender ratio enables spinning
of finer counts yarn at higher speed. On the
other hand
 the
poor slender ratio cotton gives higher value of
hairiness, imperfections and fly release and
this cotton can be used to produce course count
of yarn. Micronaire value is very important to
determine the maturity value of cotton. The
micronaire value between 3.5NCL~4.9NCL are
considered to be matured cotton. Immature cotton
will create high neps, dead fiber & color shade
in the yarn/fabric. Over matured cotton will
create imperfection in yarn like thick & thin
and will deteriorate the ability to spin. Higher
neps will increase imperfection. Pressley
measures the strength of cotton. The standard
range of Pressley is between 85,000 PSI to
95,000 PSI wherein PSI stands for “Pound per
Square Inch”. In ISO method, the strength is
measured by Gram per Tex (Gm/Tex). The standard
strength in terms of Gm/Tex is between 26 Gm/Tex
to 30 Gm/Tex. The standard value of grade of
cotton is Strict-Middling.
Cotton is grown by farmers individually or on
co-operative sharing basis but they are not
involved in marketing. To market cotton, it has
to be ginned to separate seeds, dusts & other
impurities. After ginning, cotton is compressed
to pack in bales and then graded for marketing.
The standard weight of each bale of cotton is
480lb but it differs from country to country.
The farmers or the ginners never trade cotton in
the international market. The cotton merchants
are involved in international marketing of
cotton. Presently there are over 200 cotton
merchants but 20 to 25 merchants control 80% of
the world market of cotton. These merchants have
strong association to frame trade rules and
arbitration procedures. All these rules &
procedures are framed for the benefits of their
members & the buyers have no voice in it. There
are 15 to 20 cotton associations in the world
but Liverpool Cotton Association regulates more
than 70% of the world cotton trade.
 These
associations have also formed some cartel type
body to enforce their trade rules & arbitration
awards. The name of some such bodies are- World
Cotton Exporters Association (WCEA), Association
of Cotton Merchant in Europe (ACME), Committee
for International Co-operation between Cotton
Associations (CICCA), etc. These trade bodies
are so strong that the cotton buyers are
helpless in feeding their own terms for purchase
of cotton.
Bangladesh produces small quantity of cotton of
mid-range and the volume remains between 140,000
to 150,000 bales only but with a population of
145 million it has domestic demand of 1,540
million meters of fabric for clothing. In the
past 2 decades the RMG sector of Bangladesh
developed tremendously because of EU GSP
facilities, 2-stage derogation of rules of
origin, cash assistance, US quota system,
privileged fiscal benefits, etc. Presently there
are about 3,800 Ready-Made Garments industries
established in the private sector to export RMG
products. To feed these garments industries and
to meet the local demand of fabric, 202 spinning
mills (176 mills in private sector and 26 mills
in public sector) have been in operation with
4,334,796 Spindles and 90,000 Rotors.
Textile is a labor intensive sector and abundant
skilled & semi-skilled workers are available in
Bangladesh.
 Since
Bangladesh does not grow cotton, it has to
import over 2 million bales of raw cotton from
USA, Mexico, Brazil, Paraguay, Argentina,
Turkey, Syria, Greek, CIS, Pakistan, India,
Iran, Tanzania, Zimbabwe, Australia, Sudan,
Egypt, etc. The staple length of cotton imported
by these mills is 1-1/32”, 1-1/16”, 1-3/32”,
1-1/8” & 1-7/16”. The quality of cotton varies
from country to country for various reasons. In
spite of testing at shipping point the buyer may
not get actual quality of cotton as per
contract. The rules of the cotton trader's
association provides for compensation for
deviation of certain quality parameters at given
rate decided from time to time taking into
consideration the market price of cotton. The
recognized parameters are (a) Staple length, (b)
Micronaire, (c) Strength & (d) Grade.
Cotton market is volatile and it is traded in
the commodity exchange. New York cotton exchange
and Liverpool cotton exchange are widely known
for cotton trade. The cotton traders participate
in these markets to buy and sell cotton but the
spinners are buying cotton only from the traders
through their local agent. The price index of
New York Cotton Exchange and the A-Index &
B-Index of Liverpool Cotton Exchange are one of
the deciding factors to guide the market price
of cotton with the spinners. But the real price
is decided on the basis of supply & demand and
bilateral negotiations with the cotton traders.
Normally cotton traders are conducting selling
of cotton through local agent but the local
agent seldom takes any responsibility regarding
quality, shipment timing & other terms. The
price index of New York Cotton Exchange (NYCE)
and A & B Index of last 5 (five) years show the
trend of price fluctuations.
It is very difficult to see the trend of market
price by following the annual average market
price. The volatility of the market may be seen
by going through high and low index different
years
The timing of purchase of cotton has to be taken
after careful consideration of following points:
a. Inventory level
b. Shipment timing
c. Transportation time
d. Supply condition
e. Weather condition
f. Company policy of procurement
Most of the cotton traders have been selling
their cotton through local agents against sight
L/C. In the recent past some of the traders
agreed to sell raw cotton on 180 days deferred
payment L/C to certain spinners. Since interest
rate in the overseas market is less compared to
Bangladesh, the spinners enjoying the privilege
of importing raw cotton on deferred payment L/C
are marginally benefited day by day for which
more and more cotton traders as well as spinners
have been switching to import of raw cotton to
reap the benefits of deferred payment L/C.
Bangladesh produces Knit yarn, Woven yarn &
Open-end yarn and small quantity of Blended yarn
such as Polyester, Acrylic, Nylon, Mélange,
Rayon, etc. The local spinning mills are capable
to meet 100% demand of knit yarn of the RMG
industries of knit sub-sector. They are also
capable to meet 40% demand of woven yarn of the
RMG industries of woven sub-sector. In post-MFA
era, to ensure one stop supply from backward
linkage facilities, more and more spinning &
weaving mills have to be set-up and in that case
the existing demand of 2 millions bales of raw
cotton will increase to 3 million bales of 480
lb each. Bangladeshi spinners feel CIS & West
African cotton more comfortable to produce Knit
yarn.
Cotton being an agricultural product, the volume
of supply depends on climatic condition during
farming and harvesting period. The cotton
farmers normally do not gin cotton for which a
middlemen group i.e. ginners have come forward
to set-up ginning factory nearer to the cotton
growing areas. The ginners do not hold stock of
cotton but dispose it to the traders. It is the
traders who are holding the cotton for marketing
purpose and as such they are controlling the
price taking consideration of their procurement
cost, supply situation and market demand. The
spinners in the past used to buy cotton on
forward delivery basis to meet their requirement
until availability of next crop. This is a risky
game because of volatile market and frequent up
and down in price. The spinners with their
limited knowledge and accsess to information are
unable to speculate the price for longer period.
Thus the system of forward purchase has become
less & less popular to the spinners and most of
the spinners have switched from forward purchase
to spot purchase on prompt delivery basis.
 There are more than 200 cotton traders in the
world but 15 to 20 traders control 80% of cotton
market and as such price is determined through
speculation. The market price of cotton has some
co-relation with the cotton exchange price but
it never moves in exact direction. The buying &
selling price are mostly determined on the basis
of demand & supply situation. The rules of
cotton trade are guided by the rules framed by
the cotton trader's association on which the
buyers have little voice.
Cotton is the basic raw material to produce yarn
and it represents 60% to 65% of production cost
and as such the personnel involved in
procurement of cotton must have adequate skill,
knowledge, information & data to take
procurement decision & negotiation of price. The
spinners have little access to the market & they
will never gain in purchasing cotton unless luck
favors. So, the best way to minimize the stock
level and cover stock & transit cotton by
forward sale of yarn as far as possible. The
ideal risk period should be less than 90 days
provided the future market price of cotton is
uncertain.
NB: The author is serving Prime Group of
Industries as Director-(Finance) and also .
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