Cotton Prices Explained

Abundant supply and net cancellations drove cotton prices down. The USDA projected good crop expectations and the commodity’s export sales reports showed net cancellation of 950,000 bales. The U.S. World Agricultural Supply and Demand Estimates noted that the higher production and piling inventories offset the commodity’s cooling demand.

This translated to cumulative sales of 4.102 million bales, the lowest performance in 8 years. On the demand side, China’s (top cotton exporter) economic performance posted mixed sentiments which makes the global cotton market demand uncertain. 

Why are cotton prices fluctuating?

Generally, cotton prices maintain their steady and occasional price fluctuation in the market. However, surging contributors get a hand in value variation. These are the top players:

1. Changing Weather Patterns

Cotton production and processing need a large amount of water. Normally, it takes 10,000 liters of water for 1 kilogram of cotton. Therefore, its annual production needs 250 billion tons of water.

As a result, this goal isn’t achievable considering the decades of drought producers are experiencing. For instance, production in Northern Maharashtra, India decreased by 40% over the last 2 years. Thus, this low supply affected cotton prices in the market.

2. Energy Inputs

The energy resources needed for cotton are 68.79%. This includes chemical fertilizer and diesel fuel. Also, the unpredictability in the fuel economy reflects cotton price variation. To sum up, any price increase of these inputs will completely influence their market value.

3. Farmer’s Shifting Crop Choices

Expensive production costs, changing weather,  and the short-funded agriculture industry made some U.S. growers plant soybean, corn, and wheat as they make higher yearly revenue than cotton.

The US National Cotton Council recorded a 17% land reduction of a cotton plantation this year. The shifting crop choices will result in a 5% world cotton demand equally adding to the surging price already.

4. Synthetic Fiber Production

The birth of synthetic fiber threatens the cotton industry because of its reasonable price and easy production.

Consequently, manufacturers will likely choose the former because it’s cost-effective. Additionally, sportswear apparel prefers man-made textiles due to their proven resistance to wear and tear.

Overall, cotton’s availability in the market solely depends on water accessibility, government subsidy, and practical farming techniques. These and the present factors will always have a hand in its production, supply, demand, and value.

Which variables impact the price of cotton?

• Weather Conditions
• Global Supply and Demand
• Production Costs
• Currency Exchange Rates
• Technological Advancements
• Government Policies

Where does cotton come from?

Today, China is the number one cotton producer in the world followed closely by India, the United States, Brazil, and Pakistan.

Generally cultivated, woven, and spun in the Indus River Valley (present-day Pakistan ) around 3,000 years B.C., the Arab merchants brought cotton to Europe by trade.

The first cotton seed in the US grew in Florida in 1556. The colonists soon planted cotton seeds along the James River in Virginia in 1607.

Moreover, the Industrial Revolution in England brought cotton into the international market with most of the textile mills in Asian countries such as India, Pakistan, Bangladesh, and China. 

Cotton is a natural fiber that is used to make a wide variety of textile products such as clothing, bedding, and towels. Generally, the cotton production process begins with the cultivation of the cotton plant and ends with the finished cotton fabric.

1. Planting and Growing – Cotton plants are typically grown in warm climates with plenty of sunlight and rainfall. Typically, the planting season varies depending on the region but it typically takes about 5-6 months for the cotton plants to mature. Once the plants are mature, the cotton bolls open and the fibers can be harvested.

2. Harvesting – Cotton can be harvested by hand or by machine. Hand harvesting is more labor-intensive, however, it is also more gentle on the fibers. Conversely, machine harvesting is faster but it damages the fibers.

3. Ginning – Once the cotton is harvested, it is taken to a gin to be separated from the seeds. The ginning process uses a machine to pull the fibers off of the seeds. The seeds are used to produce cottonseed oil and other products.

4. Baling and Transportation – The ginned cotton is compressed into bales for transportation to the textile mill. The bales are typically wrapped in plastic to protect them from moisture and dirt.

5. Spinning – At the textile mill, the cotton bales are opened up and the fibers are cleaned and blended. Moreover, the fibers are spun into yarn. The purpose of this method is to draw out the fibers and twist them together to form a strong thread.

6. Weaving or Knitting – The yarn is woven or knitted into fabric. This step uses a series of needles to loop the yarn around itself to create a softer and more stretchy fabric.

7. Finishing – Once the cotton fabric is woven or knitted, it is finished to improve its appearance and performance. This includes bleaching, dyeing, and printing. Additionally, the fabric is also treated to make it wrinkle-resistant, water-resistant, or fire-resistant.

8. Packaging and Shipping – The finished cotton fabric is packaged and shipped to retailers and manufacturers. Finally, it is used to make a wide variety of textile products, including clothing, bedding, and towels.

Nowadays, this valuable commodity comes from China, India, the United States, Brazil, and Australia.

What is the future price of cotton?

According to the OECD-FAO Agricultural Outlook, global cotton prices are expected to increase by an average of 1.5% per year in nominal terms over the projection period. The market projects positive support from other industries as fluctuating dollar performance and expensive polyester will potentially boost its demand.

The increasing adoption of Voluntary Sustainability Standards in the cotton market helps farmers manage water, pest, and soil issues to produce quality cotton that aligns with sustainable production goals. Also, the increasing utilization of genetically engineered cotton and investments in research and development drive market productivity. 

These initiatives are supported by large apparel manufacturing firms in Paris and Milan (top cotton buyers in the fashion industry). Also, the rise of e-commerce steers this commodity’s profitability due to the streamlined purchasing of fashion items. Thus, market analysts expect a bullish cotton market in 2030 with a price tag of $97.11 per pound.