With many manufacturers temporarily closing down production and stores across the country and world shut down amid the spreading coronavirus pandemic, cotton prices have also taken a major hit.
The weak demand has brought cotton prices below the 50-cents-a-pound mark for the first time in more than a decade, numbers not seen since the Great Recession.
U.S. spot cotton prices averaged 52.58 cents per pound for the week ended March 19, according to the U.S. Department of Agriculture (USDA). This is the lowest weekly average since the week ending Sept.3, 2009, when the average was 52.18, USDA said.
The weekly average was down from 56.15 the prior week and 70.28 cents a year earlier. Daily average quotations ranged from a high of 55.31 cents on March 13 to a season low of 49.75 cents on March 19.
The ICE May futures settlement price ended the week at 54.93 cents per pound, compared to 59.70 cents the week before. On Monday, U.S. futures were down to 53.68 cents.
According to Cotton Incorporated, pandemic-driven volatility may have been too late to affect planting decisions in most regions. Planting is underway in South Texas and will migrate northward as soils warm.
What’s currently being sold in the U.S. is stock from the previous season that ended last fall, as cotton growing and cultivating for the current season either hasn’t yet begun or is in the early planting stages.
“Mass unemployment does not mean good things for consumer spending,” Jon Devine, senior economist at Cotton Inc., said. “Reports of canceled apparel contracts have already been making headlines. As orders for apparel are canceled, upstream effects on fiber demand can be expected.”
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Cotton Inc. predicted the bottoming out earlier this month in its March analysis.
“The rapid spread of the coronavirus has significantly altered macroeconomic conditions,” Cotton Inc. said. “The Organization for Economic Cooperation and Development ventured a revised forecast for global GDP growth in 2020 in early March that suggested a 2.4 percent increase in economic activity. If realized, this would be below the 2.9 percent growth rate experienced in 2019 and would be in the opposite direction of the acceleration in global GDP assumed by the USDA in its early 2020-21 forecasts” for cotton.
Outlooks issued by some economists, such as a recent report from IHS Markit, predict a recession in the second quarter and then a gradual recovery through the fourth quarter.
Global growth in 2019 was the slowest since the Great Recession, Devine noted, adding that deceleration from that weak level does not suggest strength on the demand side of the balance sheet and implies downward risk to consumption estimates.