Trading in the newly announced Cotton Futures Contract began on Monday at India’s Multi Commodity Exchange (MCX) after around 5 months. A
fter careful consideration, the new contract was amended by the government of India, MCX, and the industry. In the new modified future contract, specifications and quality criteria have been altered in order to make prices more representative and less speculative.
SEBI had temporarily halted trading in Indian cotton due to massive price fluctuations. As the prices of cotton have stabilized and have aligned with international markets, trading in the MCX has commenced. The new cotton contract was named cotton candy as its trading unit changed from bales 170 kg to candy of 356 kg. Tick size is also modified from ₹10 to ₹20 per candy.
The initiation of trading in the new cotton futures contract offers several benefits to the stakeholders of the cotton supply chain.
- Price discovery
It will help farmers discover the prices and assess if growing cotton is more lucrative than growing other pulse crops in the next Kharif season. While taking a decision to sell their cotton in the market, it will provide them with a reference point, helping them to optimise their profits.
- Keeps a tab on price volatility
Apart from reducing price volatility, the new cotton futures contract will act as a market tool and mitigate adverse price volatility.
- Effective risk management tool
Changing the trading unit from bales to candy and trading quantities will enable the stakeholders of the cotton supply chain, such as ginners, spinners, and textile mills, to hedge the price risk.
ReshaMandi, India’s first and largest farm-to-fashion digital ecosystem, is working with the stakeholders of the natural fibre supply chain. The new Cotton Futures Contract will support ReshaMandi, working to provide fair pricing to farmers and facilitate cost-effective, hassle-free procurement of raw materials for spinners. Commencement of trading at India’s Multi Commodity Exchange (MCX) , has opened up avenues to harness our potential as the largest producer of cotton in the world and make a difference in the global textile value chain.