Merchant – An Important Link
The function of the cotton merchant and his business is to act
as the link between the producer and consumer by taking the
trading risks inherent to the merchandising of cotton that neither
of them are willing or prepared to take.
Whereas producers may be selling their crops forward to
guarantee their profit margins against costs of production, spinning
mills may be buying only in the spot market on a hand-tomouth
basis to match purchases as much as possible with their
These contrasting interests make it quite remote that producers
and spinning mills are capable of dealing with each other
directly on a consistent basis. A merchant has to be prepared to
buy when the producer wants to sell, and sell when a spinning
mill wants to buy. In the interim, he absorbs the price risk management
involved to get the job done.
As well, the merchant has the issues of distribution: Delivering
the right cotton at the right time. Cotton is a product of nature
and invariably suffers from variations in quality specifications –
from crop to crop, region to region and supplier to supplier. As
an example, some mills are tolerant of low micronaire, while
others may be more tolerant of high micronaire, and others may
have no tolerance whatsoever. While a producer has his hands tied to his own production in order to perform a sales contract,
the merchant can be selective and has a book of business
whereby he can apply the right cotton to the right customer.
Finding The Customer
With the advance of sustainability and the growing demand
for verification of production practices, such as the BCI* global
program, the merchant has the additional job of finding this
cotton and getting it to the right customers.
The success of the merchant is directly proportional to his
willingness, experience, knowledge, capacity and ability in
taking risks and matching these requirements. Meanwhile, the
customers want to source from those merchants who can do the
best job at competitive pricing.
* BCI stands for Better Cotton Initiative: www.bettercotton.org