ITM Business School PGDM-FM 2023-25

ITM Business School

PGDM-Financial Markets
Batch - 2023-2025

Sem-II

Subject: Commodity Markets

Project Submission

Submitted By: Group # -04

Sr. No. Roll No. Full Name

1 21230023159 SNEHA BHADRA

2 21230023907 SONALI DUBEY
3 21230023883 JIGNA CHOUDHARY
4 21230023397 PRATYUSH SHISHODIYA
5 21230023490 BALJIT SINGH
6 21230023847 AMRUTA PATNEKAR

Subject: Commodity Markets Project Submission by Group # - 04

 ITM Business School PGDM-FM 2023-25

1. Fundamental attributes of the commodity cotton.

Cotton is a significant commodity with the following fundamental attributes:

Natural Fiber: Cotton is a natural fiber that grows around the seeds of the cotton plant (Gossypium
spp.), a shrub native to tropical and subtropical regions.
Versatility: Its widespread use is largely due to the ease with which its fibers are spun into yarns.
Cotton’s strength, absorbency, and capacity to be washed and dyed make it adaptable to a
considerable variety of textile products.
Varieties: Different species of cotton plants produce fibers of different lengths. Long-staple fibers are
spun into fine, strong yarns, which are then woven into better-quality fabrics. Short-staple fibers
produce coarser yarns for durable fabrics.
Production: In India, cotton has been cultivated as an important cash crop and used as fabric since
time immemorial. India produces many varieties and hybrids, with about 25 varieties contributing to
98% of the production.
Applications: Cotton lint is used to make many textile products such as terrycloth, bath towels, and
robes; denim, is used to make blue jeans; twill. Socks, underwear, and most T-shirts are made from
cotton. Bed sheets are often made from cotton. Cotton is also used to make yarn used in crochet and
knitting.
Economic Significance: The basis, which refers to the difference between the futures price and local
cash price for cotton at the time the cotton will be sold, is an important economic factor in the cotton
trade.

2. Commodity Pricing Determinants and Risks of the commodity cotton.

The pricing of cotton as a commodity is influenced by a complex interplay of factors. Here are some
key determinants:
Production: Risks associated with farming and harvesting cotton crops, such as weather conditions
and pests, can affect the supply and thus the price.
Domestic Economic Factors: The economic conditions in the country of production can influence
cotton prices.
Government Policies: Subsidies, tariffs, regulations, and other policies set by the government can
greatly influence cotton prices.
Market Speculations: Trading activities can heavily impact cotton prices.

Quality of Cotton: The quality of the cotton can also affect its price.
As for the risks associated with cotton as a commodity, they include:
Weather-Related Threats: Unfavorable weather conditions can lead to poor crop yields.
Climate Change: Changes in climate patterns can affect cotton production.
Pests and Diseases: These can significantly reduce the quantity and quality of cotton produced.
Market Uncertainties: Fluctuations in input costs and output prices can affect the profitability of
cotton production.
Government Policies: Changes in government policies can create uncertainties in the market.
Sustainability Concerns: There is increasing demand for sustainably produced cotton, which can affect
market dynamics.

3. Commodity Margin Requirements of the commodity cotton.

Margin requirements for trading cotton as a commodity can vary based on the exchange and the
specific contract. Here are some general aspects:

Subject: Commodity Markets Project Submission by Group # - 04

 ITM Business School PGDM-FM 2023-25

Initial Margin: This is the minimum amount that must be deposited to open a futures contract. It’s
designed to cover the maximum possible loss that can be incurred in one trading day.
Maintenance Margin: This is the minimum amount that must be maintained in the account after
losses have been deducted. If the account balance falls below this level, a margin call is issued, and
the trader must deposit additional funds.
Variation Margin: This is the margin necessary to cover any potential future loss in a position due to
price changes.
SPAN Margin: The Standard Portfolio Analysis of Risk (SPAN) system is used for margining, which is a
portfolio-based system.
Additional Base Capital (ABC): In case a trading member wishes to take additional trading positions,
his Clearing Member is required to provide ABC to the National Securities Clearing Corporation
Limited (NSCCL).
Please note that these are general guidelines and the actual margin requirements can vary. For the
most accurate information, it’s recommended to check with the specific exchange or brokerage where
you plan to trade, such as the National Commodity & Derivatives Exchange (NCDEX), the
Intercontinental Exchange (ICE), or Zerodha.

Subject: Commodity Markets Project Submission by Group # - 04