Commodity Collapse? What to Know About Cotton Prices Right Now

Updated: Aug 3

By Sourcing Journal


This article was published in Sourcing Journal July 20, 2022.


Cotton prices seem to have stabilized from their pandemic and China trade war-induced spike of $1.25 per pound, but now the fashion commodity is subject to the jolts of inflation as well as global supply and demand issues.

U.S. spot cotton prices averaged $1.03 per pound for the week ended July 14, according to the U.S. Department of Agriculture (USDA). The weekly average was down from $105 the prior week, but up from 85.02 cents a year earlier. The Intercontinental Exchange, or ICE, October settlement price ended the week at 91.41 cents per pound, compared to 99.82 cents last year, USDA reported.


“Fears that the rapidly decelerating global economy will stifle cotton demand has led December 2022 cotton futures to plummet 35 percent from their mid-May highs,” a new quarterly report from CoBank’s Knowledge Exchange said.


However, CoBank economists believe concerns around nosediving cotton demand might be overblown. Through April, retail clothing store sales jumped 15 percent from a year earlier, they noted, far outpacing the 5.8 percent increase in clothing prices over the same period.

“Additionally, the share of cotton fiber used in apparel has rebounded after more than a decade of decline,” the CoBank report added.


Textile Exchange said in a recent report that cotton accounted for 24 percent of global fiber production in 2020. This compared to 52 percent for polyester.

Cotton price fluctuations over the last year.

In the Cotton Incorporated monthly analysis of the cotton market, published last week, senior economist Jon Devine wrote that “benchmark prices collapsed over the past month.”

Devine noted that before expiring, the July New York/ICE futures contract lost 30 percent of its value in just a couple of days, falling from $1.44 per pound on June 22 to $1.00 on June 24. The timeframe for the collapse in December NY/ICE futures was slightly longer, extending from June 17-July 6. During that time, December futures lost 25 percent of their value, dropping from $1.20 to 90 cents.


Similar to NY/ICE futures, there are two price series for the A Index, an average of global cotton prices, to watch during this period of transition from the 2021/22 to the 2022/23 crop year, Devine said. Values for the 2021/22 version of the A Index fell from $1.61 on June 21 to below $1.30 by July 7, as values for the 2022/23 version of the A Index, referred to as the Forward A Index, fell from $1.25 cents on June 23 to $1.06 on July 7.


The International Cotton Advisory Committee (ICAC) said the stocks-to-use ratio–available cotton stocks as a share of cotton mill use–helps to explain the relationship between cotton supply and demand. When supply is tight compared to demand, the ratio is lower and lower stocks-to-use ratio could indicate higher prices. In contrast, when supply exceeds demand then the ratio increases, putting downward pressure on cotton prices. Planted area also can have a major impact on prices.


In its June acreage report, USDA estimated 2022-23 U.S. cotton plantings at 12.48 million acres, 11.3 percent more than in 2021. Upland planted area is estimated to have increased 11.1 percent to 12.32 million acres, ICAC noted, while extra-long staple producers, such as those that make Supima cotton, planted 156,000 acres, a 23.3 percent increase.


USDA’s June projection for all cotton is 244,000 acres more than projected in its initial 2022 estimate released in March.


The latest USDA report also featured reductions for world production and mill-use for the 2021-22 and 2022-23 crop years. For 2021-22, the global production estimate was lowered by 700,000 bales to 116.2 million and global consumption was fell by 1.9 million bales to 119.8 million. For 2022-23, the global production forecast was lowered 1.2 million bales to 120.7 million and global consumption dropped 1.6 million bales to 119.9 million.


With the decreases in use exceeding the declines in production, figures for global ending stocks increased. For 2021-22, the projection rose 1.1 million bales to 84 million, while for 2022-23, the forecast increased 1.6 million bales to 84.3 million.


Devine noted that recent volatility was not limited to the cotton market. A wide range of commodities lost significant value in June. Between June 9-July 5, NY/ICE December cotton futures fell 25 percent, corn declined 19 percent, soybeans fell 17 percent, wheat was down 25 percent and Brent crude oil fell 12 percent.


“The breadth of losses throughout the commodity sector suggests a sea change in investor sentiment for the entire category,” Devine wrote. “The effects of inflation, the withdrawal of stimulus, rising interest rates and concerns about a possible recession could all be reasons explaining a reversal of speculative bets and all could be contributors to the losses. While the macroeconomic environment can be expected to continue to weigh on prices, there are also supportive forces for the market that are specific to cotton.”


Specifically, the current USDA forecast for U.S. cotton production is 15.5 million bales though that estimate might shrink over time because of the severe drought plaguing West Texas. The current harvest figure is 2 million bales lower than the 2021-22 number and is equal to the five-year average for U.S. cotton exports, he noted.


On top of exports, the U.S. will need to supply domestic mills with 2.5 million bales, according to Devine. The last time the U.S. had a severely drought-impacted crop in 2020-21, the harvest totaled just 14.6 million bales, and in that crop year, the U.S. was able to export more than it grew because it had accumulated stocks in the previous year.


“The U.S. is coming into the 2022-23 crop year with low stocks,” Devine added. “This suggests U.S. shipments may have been rationed. Since the U.S. is the world’s largest exporter, this may lend some support to prices internationally.”

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