Cotton swaps for producers
‘I want the security of a fixed price.’
You are a producer (seller) of cotton. It is important for you to have certainty for planning and budgeting. You would therefore like to agree on a fixed price now for when you sell your cotton at a future date.
A cotton swap allows you to receive a fixed commodity reference price for cotton.
How it works
After credit approval, you enter into a cotton swap with the Bank. We will calculate the fixed price based on certain factors, such as the current commodity reference price, the pricing date/s, the transaction amount and transaction period.
Possible outcomes on the pricing date
- If the commodity reference price is lower than the fixed price, we must pay you the difference between the fixed price and the commodity reference price.
- If the commodity reference price is higher than the fixed price, you must pay us the difference between the fixed price and the commodity reference price.
- If the commodity reference price is equal to the fixed price, you and the Bank will have no further obligations to each other with respect to the cotton swap.
- You receive price protection by fixing the commodity reference price.
- You can determine the transaction amount and pricing date/s.
- The transactions are cash settled so there is no need to physically deliver cotton to the Bank.
- There are no complex exchange
Points to consider
- You cannot benefit if the commodity reference price moves above the fixed price.
- You are not covered for the basis risk, which is the risk arising from entering into a hedge transaction that is not identical with the risk being covered.
- You may have to pay an amount if the cotton swap is terminated prior to its scheduled termination date, depending on its mark to market value.
- Important information about advice
As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the advice, consider its appropriateness to your circumstances. View our Financial Services Guide (PDF 59kb).
View the Product Disclosure Statement (PDS) for Agricultural Commodity Risk Management Solutions issued by the Commonwealth Bank of Australia, and consider it before making any decision about the product(s).