Introduction
Like many commodity futures, cotton is a volatile asset with sharp bullish rallies and depressing bear markets. However, unlike coffee and cocoa which are tree crops, cotton is cultivated as an annual with rapid reactions to changes in weather.
Just a few years ago in 2022, we observed the second largest cotton rally in the last fifty years, which was triggered by a severe drought that hindered cotton planting in West Texas and the American Southwest.
These events highlight the dynamic and unstable properties that are unique cotton. This has been the case throughout the plant’s history, marked by an ongoing struggle to produce better yields despite numerous natural challenges.
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As of today, though, many modern players view cotton merely as a financial instrument, while consumers often see it as the source of their textiles. However, for professionals and industry insiders, cotton is still, first and foremost, a plant.
It holds a significant place in global commodity markets, often drawing attention due to its unique behavior. These movements attract traders and institutions looking to understand and predict future price trends.
But in order to better grasp these dynamics, one must first understand cotton’s nature as a living being. We must understand what cotton is.
Overview
The long-term price of cotton is ultimately driven by supply and demand, with supply varying greatly based on biological and climatic considerations. However, unlike most plants, cotton's growth cycle and farming methods make it highly susceptible to short-term weather shocks and changes in the climate.
Traders can predict crop yields by understanding the nature and vulnerabilities of the cotton plant, which in turn drives long-term market prices. This knowledge is not just theoretical, it is a crucial aspect of commodity analysis, where the rhythms of nature intertwine with the dynamics of global trade.
When analyzing agricultural commodities like cotton, biological and climatic considerations form the foundation of fundamental analysis. This is particularly true for cotton, whose optimal growth conditions directly impact its yield and quality.
Awareness of climate impacts can predict supply disruptions, and a deep understanding of the growth cycle will determine how the climate will affect yield.
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In this article, we will cover the essentials of the biological nature of cotton, from the plant’s environmental needs to its biological life cycle and cultivation process. By gaining insight into these aspects, traders can make more informed decisions and better navigate the complexities of the cotton market.
Cotton Plant Characteristics
The cotton plant (Gossypium spp.) is primarily grown in tropical and subtropical regions. Although it is a perennial plant, it is often cultivated as an annual to optimize fiber production. As such, it possesses a very peculiar structure and appearance.
Typically, the cotton plant grows between three to six feet tall, boasting broad, lobed leaves that are dark green in color. It produces large, creamy white flowers that turn pink or red after pollination, eventually giving way to bolls. These bolls are seed capsules that contain valuable cotton fibers.
Generally, one plant produces between 2 to 6 grams of lint per boll, and while the exact quantity might change due to a myriad of factors in the growth process, each plant should produce around twenty bolls.
One of the factors affecting the number of bolls is the root system. This part of the plant is characterized by a deep taproot, which enhances its drought resistance. Another factor is the size of the main stem, the structural support with a woody texture and a strong central core.
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At specific points along the main stem (called nodes), leaves, branches, and bolls develop. The length of the internodes, the spaces between nodes, varies depending on growing conditions and is critical for the development of the plant's branching and fruiting structure.
Cotton’s nature as fast developing plant means that will depend on very specific conditions to properly grow and give the desired yields. Some of the most important are:
Temperature: thrives in warm temperatures - >77-95°F (25-35°C).
Rainfall: requires annual rainfall between 500-1000 mm.
Humidity: prefers moderate humidity levels.
Soil: grows best in well-drained, nutrient-rich soils.
Seasonality and Producing Countries
For both traders and analysts, it is essential to understand the seasonal calendar for planting, development and harvest of cotton, so they can perceive the weather vulnerabilities and challenges before they impact the markets.
The seasonal timing for cotton planting typically occurs in spring, with rapid vegetative growth during early summer. Flowering and boll development begin around five weeks after planting, and harvesting occurs in late summer to early autumn.
As a result, the cotton calendar will vary significantly around the world, according to local seasonality.
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Major cotton producers include China, India, the United States, Brazil, and Pakistan. Each of these nations has its own planting and harvesting schedule.
· United States: Planting starts in April-May; harvesting is done by September-November.
· China: Planting starts in April-May; harvesting is done by September-November.
· India: Planting starts in June-July; harvesting is done by November-February. The seasonal timing is later than others of the northern hemisphere
· Brazil: Planting starts in October-December; harvesting is done by April-July.
· Pakistan: Planting starts in April-June; harvesting is done by October-December
Life Cycle
The cotton plant has very exacting biological requirements and therefore cotton farming requires a careful, systematic approach to ensure optimal growth and yield. This approach includes specific farming methods in a conducive environment to ensure the success of the crop.
From the initial field preparation to the final harvest, each step plays a crucial role in the successful production of this valuable crop, and a slight mistake in any of them could mean a severe reduction in yields.
Field Preparation for Planting
The field itself is an essential component of successful cotton development. Unlike tropical forest crops like coffee and cocoa, cotton is planted in an area completely clear of trees, bushes, and significant vegetation. This not only gives the plants room to grow but facilitates plowing the field during the dry season to create a firm, flat seedbed.
Soil condition and pH levels are important considerations for farmers preparing to plant their crop because a poor field can produce irreversible damage to yields. In some cases, farmers might even decide to delay the planting if the soil is not appropriate at the time.
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Planting Process
Once the farmer is convinced that the soil quality is sufficient, it is time to start the planting process.
The first step involves selecting seeds to ensure good germination rates and disease resistance. After that, the plating occurs usually through either the drill or broadcast methods.
Drill planting involves placing seeds in rows using a mechanical drill, which ensures uniform depth and spacing, leading to consistent plant growth. Broadcast planting, meanwhile, involves scattering seeds over the soil surface and then covering them with a thin layer of soil. While the second method is faster, it can result in uneven seed distribution.
This might be a problem, considering that proper spacing is essential for the healthy growth of cotton plants, to ensure adequate sunlight penetration and air circulation through the field.
Growth Process
After the seeds are secured on the ground, the cotton plant begins its growth.
Growth starts with germination and emergence, which typically occurs five to ten days after planting. Once moisture is absorbed, the seed coat splits, and the radicle emerges, growing downward into the soil. This is the previously mentioned taproot, essential for absorbing nutrients and water.
This phase depends mainly on the soil temperature. If the earth is too cold, particularly below the threshold of 60°F, the plant will present reduced growth and will not provide proper yields. In this sense, measuring the number of days that the soil temperature is above the minimum condition is a good way to estimate future crops.
During this stage, the seedling emerges through the soil surface, driven by the rapid growth of the hypocotyl, which pulls the embryonic shoot upwards. The cotyledons, or seed leaves, then unfold and begin photosynthesis.
Next is the seedling establishment stage, characterized by the development of true leaves and a substantial root system. This stage usually begins five to ten days after planting. In it, the main stem begins to elongate, supporting leaf and bud growth. The stem is made up of a sequence of nodes and internodes, exhibiting an indeterminate growth pattern.
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During this stage, we will already be able to see some of the results of all the previous work, since the number of nodes in the plant will be affected by both genetics and environmental factors.
The third stage, leaf area and canopy development, is crucial for the plant's overall health and productivity. During this phase, the cotton plant focuses on expanding its leaf area to maximize sunlight capture. The leaves are arranged in a spiral pattern around the stem, with new leaves and branches continuing to grow. This stage also involves the development of vegetative and fruiting branches, which play a vital role in supporting the plant's reproductive structures later.
Around five weeks after planting, the cotton plant enters the flowering and boll development stage. The appearance of flower buds, or squares, signifies the onset of reproductive growth. These squares eventually bloom into flowers, which are pollinated and then develop into bolls, the cotton's fruit. Each boll contains seeds surrounded by cotton fibers. The transition from square to flower and then to boll is a continuous process, with new reproductive structures forming as the plant grows.
Once more all the preparation in early phases will play an important role, since it will determine the quantity of squares in each node. If the cotton plant is unable to produce a good amount of squares per node, or has far too few nodes, the crop will be a failure.
Finally, the maturation stage culminates the cotton plant's lifecycle. During this phase, the bolls mature and the fibers within them develop fully, reaching their peak length and strength. The plant's nutrient requirements shift, with a focus on supporting the developing bolls. Proper fertilization, including balanced amounts of nitrogen, phosphorus, potassium, and trace elements, is crucial to ensure the bolls mature correctly and produce high-quality cotton fibers.
Harvest Process
With the cotton ready for harvest, the cotton life cycle can finally reach its conclusion. Harvesting time varies by region, but it usually takes four to six months after planting.
The first step is to identify the mature bolls. Those are ready to be picked when they split open to reveal the cotton fibers. Even then, it is important to be sure that the fibers are fully developed, as to not reduce the quality.
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Second, it is common practice to apply defoliants. Those are meant to remove the leaves, which can help in making the bolls more accessible and reducing the amount of leaf debris mixed with the harvested cotton.
For the harvesting process itself, it can be used both human labor and machines, with the first being the main choice in The United States. While machinery makes the process cheaper and to increase the yield collected, it can also damage the cotton and possess a high maintenance cost.
The post-harvest handling involves ginning, where the cotton undergoes a process to separate fibers from seeds, as well as removing dirt, leaves, and other debris. The fibers are then processed and baled in gins for transport.
Conclusion
Understanding the biology of the plant is an important first step for effective agricultural commodity analysis. Cotton is a popular market to trade because it is an essential crop for human life but volatility in the production of cotton can lead to both risks and opportunities.
The above article highlights how even slight changes in weather conditions can create dramatic risks and opportunities due to their impact on crop yields.
At the Cotton Trading Academy, we often say that we are students of cotton as well as teachers. We often focus on the financial aspects of soft commodity analysis in our studies, like currency impacts, trade flows and financial instruments. However, we are first and foremost focused on the fundamentals of commodity analysis: supply and demand. For agricultural commodities like sugar, cocoa, coffee or cotton, it is the biology of the plants that form the foundation.
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