As majority of contracts transacted on the EICA throughout the last one year were squared off towards the end December, the delivery of these six units was a sort of test, for the actual composition of the cotton futures contract that is expected to be a balanced one and popular amongst all the concerned players in the cotton economy -- the farmers, the traders, and actual cotton consuming mills.

"We have successfully tested both the provisions of the ICC as also the bye laws of cotton futures trading," said EICA president Suresh Kotak. "Given the complexities of the cotton futures trading, we are constantly vigilant and upgrading the necessary clauses in our bye laws to make the contract more user friendly".

Each unit of ICC comprises 55 bales (of 177 kg each),resulting in actual delivery of around 330 bales, or 56,100 kg. Also, each ICC is constituted of the basis 26 mm variety, of fine grade cotton having micronaire of 3.6-4.2 and a strength of 18 G/Tex. The quality of cotton tendered for delivery was within the tenderable range of 24.5 mm to 29. mm micronaire against the basis variety of 26 mm.

While the actual details of variety of cotton delivered in the December 1999 delivery was not available, informed sources say majority of the deliveries were of Sankar 5/6 varieties (29 mm), higher than the basis 26 mm variety that comprises the ICC. The seller delivering the higher variety was entitled to a premium fixed by EICA.

At the official due date rate (fixed by the EICA) for December 1999 delivery at Rs 3,993 per quintal, the total value of six units of ICC that came up for delivery in December 1999 works out to Rs 22.40 lakh.

The closing rate for the ICC December 1999 delivery was placed at Rs 3,995 per quintal, down from the month's high of Rs 4,075recorded on December 23. The quotations jumped from same day's Rs 3,995 per quintal, primarily on the news that some ICC units were coming up for actual delivery.

Interestingly, the upcountry spot price for LRA-5166 (a comparable variety) was placed at Rs 4,400 per quintal, higher than the ICC's December 2000 delivery contract price of Rs 3,993 per quintal. Even the spot price for the basis 26 mm variety was quoted at Rs 4,049-4,077 per quintal, again higher than the ICC December 1999 delivery contract due date rate of Rs 3,993 per quintal.

Thus, from the comparable futures prices of ICC December 1999 delivery with the spot prices (of comparable varieties of cotton) during the same period, the ICC contract appears to be favouring more to the buyers (traders, and mills) than the sellers (farmers, upcountry traders). Also, the contract appears to be beneficial to the mills.

What is more, the constant bearishness in the futures rates in ICC trading, saw spot prices (for LRA-5166) too slide from a high ofaround Rs 4,640 per quintal in November and even for spot basis 26 mm variety which was quoted at around Rs 4,499 in November last.

The EICA bye-laws permit deliveries of traded cotton at any pressing centre across the nation and there are over 1,000 cotton pressing centres. Whether, reduction in the number of delivery centres results in some balancing of the contract in favour of the sellers (farmers and or upcountry traders) remains to be seen.

FMC permits margins
Effective January 10, 2000, the Forward Markets Commission (FMC) has permitted EICA to trade in the ICC June 2000 delivery, at special margins halved from those prevailing for both February and April 2000 delivery contracts.

According to the new halved margin limits permitted by the FMC for June 2000 deliveries, special margins of 2.5 per cent, five per cent and 7.5 per cent will be levied if the price quotes fluctuate (either way) by 15 per cent, 20 per cent and 25 per cent.

The ICC for June 2000 delivery closed on Friday at4,029 per quintal, down from Rs 4,013 per quintal on January 11.

``This halved margins is expected to result in higher trading volumes,'' said a leading EICA member requesting anonymity.

Earlier, the higher limits had almost halted trading in ICC April 2000 delivery while sharply reduced trading in volumes of the February delivery contract.''