Cotton Disputes Reach Record as Awards Surge to $658 Million

Contract disputes in cotton, last year’s second worst-performing commodity, surged to a record in 2012 while settlements quadrupled to almost 407 million pounds ($658 million), the International Cotton Association said.

A record 247 applications for technical arbitrations were received last year, up from the previous high at 242 in 2011, the Liverpool, England-based ICA said in a statement today. In the past two years, arbitration requests have increased to five times their normal annual average as market volatility spurred more traders to default on contracts, the ICA said.

Cotton futures tumbled 18 percent last year on ICE Futures U.S. in New York, with only coffee performing worse among the Standard & Poor’s GSCI Index of 24 raw materials. In June, the most-active cotton contract slumped to 64.61 cents a pound, the lowest since October 2009, and down 71 percent from a record $2.197 a pound achieved in March 2011. World production may outstrip demand for a fourth consecutive year in 2013-14, according to Rabobank International estimates.

“As we move into the first quarter, the pace does not seem to be slowing down” for arbitration filings, ICA President Ahmed Elbosaty said in the statement. ICA is looking at ways to reduce the time and costs taken for cases, he said.

Arbitration Awards

In 2012, 226 cases were settled with awards climbing to 406.77 million pounds, ICA Managing Director Kai Hughes said in an e-mailed response to Bloomberg questions. In 2011, there were 99 awards with a total value of 89.47 million pounds. Arbitration activity has increased in Bangladesh, Vietnam and China, he said.

Terry Townsend, executive director of the Washington-based International Cotton Advisory Committee, estimated in August that cotton traders may break $600 million in contracts during 2012, or 5 percent of the fiber traded globally.

Cotton futures for March delivery climbed 0.2 percent to 75.49 cents a pound at 9:59 a.m. on ICE Futures in New York. Rabobank expects prices to average 70 cents a pound in the first half of this year, according to its annual outlook report published Nov. 28.

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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