The ever rising prices of cotton are hurting a very important section of the cotton trade in the US. The go-betweens or middle-men, who buy cotton from the farmers and sell it to the textile mills, have been forced to fork out additional capital.
These traders typically hedge the price of the cotton bales they own by locking in sales on the futures market. As futures prices increase, the exchange demands more margin money. The margin money is held by the exchange as collateral against a futures position.
This has meant that the US based traders have been forced to shell out an astronomical US $5 billion since the just last 3-4 months, considering that cotton futures have flared up sky-high and touched 15-year historic highs in the period.
Fibre2fashion News Desk - India
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