On June 1, 2023, the Zhengzhou Commodity Exchange (hereinafter referred to as "ZCE") celebrated the 20th anniversary of the listing of cotton futures.
Over the past 20 years, cotton futures have played an indispensable role in serving industrial development by improving the price discovery mechanism, enriching the risk management tools of cotton industry chain enterprises, continuously stabilizing the production and operation of cotton textile enterprises, helping cotton farmers achieve stable and increased income, and promoting the optimization and upgrading of industrial structure.
China is a major cotton producer, consumer, importer, and exporter of cotton textiles and garments, holding a significant position in the global cotton raw material and finished product trade.
Cotton futures were listed on the ZCE in 2004. The listing of cotton futures opened the curtain for the rapid and coordinated development of the market during the cotton market reform process. The ZCE adheres to the path of deepening industrial reform, responding to national industrial policies and development plans, and creating a favorable environment for high-quality development of the cotton industry.
From 2004 to the present, the cotton futures market has grown from nothing to a significant size, with market scale steadily expanding and price discovery function gradually becoming prominent. It has not only provided effective risk management tools for cotton textile industry chain enterprises, but also played an important role in serving the high-quality development of the cotton textile industry chain.
Since the implementation of cotton target price reform in 2014, cotton futures have efficiently played a price discovery function. When market supply and demand are imbalanced or industrial policies change, cotton futures can respond accurately and quickly, providing a strong basis for cotton industry chain enterprises to scientifically judge the cotton market situation.
Since 2016, the ZCE has launched 33 cotton "insurance + futures" pilot programs. At the same time, the ZCE has built and developed multi-dimensional over-the-counter businesses, such as over-the-counter platform warehouse receipt buyout repurchase business.
Since September 2017, the ZCE has set up 12 delivery warehouses in Xinjiang, responding to the trend of accelerating the transfer of the cotton industry to Xinjiang and serving the high-quality development of Xinjiang's cotton industry. According to incomplete statistics, 700,000 tons of Xinjiang cotton are hedged and sold through the futures market every year, mainly in the form of registered warehouse receipts.
After 20 years of growth and transformation, cotton futures can accurately reflect changes in market supply and demand. Futures prices have become an important indicator for cotton enterprises to arrange production and operation activities, and the use of futures tools for hedging has become an important means for cotton enterprises to avoid risks.
Currently, Chinese cotton enterprises widely carry out spot price transactions and basis trading based on cotton futures prices to stabilize raw material costs and product prices, reduce the impact of market price fluctuations, and improve operating efficiency. In Xinjiang, China's main cotton-producing area, the "basis trading" model based on the futures market has replaced the traditional "fixed price" cotton trading method and become the mainstream in the cotton trading market.
Ji Guangpo, currently serving as chief expert and executive vice general manager of the Shanghai International Cotton Exchange, participated in the development of cotton futures. He stated: "Over the past 20 years, cotton futures have become an indispensable tool for cotton enterprises."
Henan Tongzhou Cotton Industry Co., Ltd. integrates cotton acquisition processing, cotton textile and garment production, import and export trade, and warehousing and logistics services. Wei Gangmin, chairman of the company, said: "I have been dealing with cotton for decades. We use cotton futures for in-depth hedging. Without cotton futures, the company would not have developed to where it is today."
"Now, whether it is the market size or the further application of options derivatives, we can be very proud to say that cotton futures are no less competitive than any variety on any international market exchange." Said Chen Tao, former chairman of Louis Dreyfus (China).
On the basis of ensuring the stable operation of cotton futures, the ZCE has successively launched cotton yarn futures, cotton options, and an over-the-counter comprehensive business platform, establishing a textile product derivatives trading center with a rich variety of tools, making the "toolbox" available to physical enterprises even richer. As a stabilizer for industrial development and a booster for the implementation of industrial policies, cotton futures continuously empower the healthy development of the cotton industry.
The relevant person in charge of ZCE stated that the listing of cotton futures has very important significance. After 20 years of development, a comprehensive cotton derivative system has been built, centered on cotton futures, including cotton options, cotton yarn futures, and an over-the-counter market. The hedging and price risk management functions of cotton futures are good. Currently, 95% of large and medium-sized ginning enterprises and cotton trading enterprises participate in cotton futures trading.
Since its listing, the correlation between cotton futures and spot prices has reached 0.95. In the function evaluation of all markets and all varieties organized by the China Securities Regulatory Commission, cotton futures have reached Class A for five consecutive years. For 20 years, we have been committed to serving enterprises, the real economy, and the national development. Next, the ZCE will continue to optimize the rules and regulations system of cotton futures, help build a new productive force in the cotton industry chain, and serve the high-quality development of the cotton industry." Said the above-mentioned person in charge of ZCE.
