Seed cotton price fixation
Seed cotton price fixation

Seed cotton price fixation

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Ability for the farmers to fix the price of seed cotton, all year long

Thrakika Ekkokkistiria S.A. is the only business in Greece that has given the opportunity to cotton farmers to lock in the price of seed cotton through the Futures Market, for 18 months and not only on the day they deliver their cotton. The company has been following this practice since 2016. More specifically, a farmer can "fix" the price from January to June the next year. For example, for the 2019 harvest the farmer can "fix" the price from January 2019 up to June 2020.

It is a fact that during the harvest season 85% of the global cotton production is collected and supply is very high. This leads to lower prices when the producers deliver their seed cotton to the ginning mills. On the other hand, price fluctuation in a period of 18 months is very high (over 10 cents/kg of seed cotton for the last years) and this gives the opportunity to farmers to achieve a better price. On their call. 

The following diagram shows the difference of everyday prices in the Futures Market from what the ginning mills paid during the season (per cent), for the years 2016/17 to 2018/19. We can see that the differences are very high.

The farmers can either "fix" the price before they deliver (presale) and up to 30% of their estimated production, or to deliver their product, get paid 60% of the season's price and "fix" the price later, until June. In this way, the season's price until February is guaranteed and there is only potential profit until the end of that month. 

Most of the farmers the company works with make use of these tools and receive significant gains.



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