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Cotton Price Slide Continues as Ending Stocks Set to Rise

Cotton prices are in a tumble cycle, brought down by lower demand and higher supply amid ongoing trade tensions.

Spot prices on U.S. cotton averaged 60.50 cents per pound for the week ended July 4, up from 59.90 cents from the previous week, but down 25 percent from the 80.42 cents per pound a year earlier, according to the U.S. Department of Agriculture (USDA).

On Tuesday, USDA reported spot cotton prices were down to 57.32 cents per pound from the previous day’s close of 59.42 cents. Cotton futures for December delivery ended the day on Tuesday at 60.23 cents per pound, down 2.10 cents per pound, bringing prices down for a fourth straight session on the commodities exchange.

The International Cotton Advisory Council (ICAC) said the 2018-19 projected ending stocks of 17.8 million tons are expected to expand to 18.7 million tons by the end of next season, with stocks outside of China reaching an all-time high of 10.5 million tons.

“If consumption increases in 2019-20, it likely will come from the emerging economies in Asia and Southeast Asia,” ICAC said.

In its June acreage report, USDA estimated 2019-20 U.S. cotton plantings at 13.72 million acres, 2.7 percent less than in 2018. Upland cotton planted area is estimated to have decreased 2.9 percent to 13.45 million acres. USDA’s June projection for all cotton is 60,000 acres lower from its initial 2019 estimate released in March.

Since China implemented a 25 percent retaliatory tariff on imports of U.S. cotton fiber last July, its imports from the U.S. have dropped 44 percent, or by 868,000 bales.

“A central source of uncertainty for the cotton market remains the trade situation between the U.S. and China,” Cotton Incorporated’s Monthly Economic Letter said. “These two countries represent not only the world’s largest exporter and importer of cotton fiber, but are also the world’s largest exporter and importer of apparel and the world’s two largest economies.”

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While the demand for cotton could be impacted by a predicted slowing global economy, supply is seen diminishing. The latest USDA report had slight reductions to forecasts for world production and mill use in the upcoming 2019-20 crop year. The global production number decreased 137,000 bales to 125.3 million bales, while the global consumption forecast fell 660,000 bales to 125.3 million bales.

For the 2018-19 crop year, the global production estimate increased and the mill-use estimate decreased. This lifted the figure for 2018-19 world ending stocks 1.1 million bales to 77.5 million bales, and resulted in a corresponding increase to 2019-20 beginning stocks.

In combination, the smaller decrease in 2019-20 production relative to 2019-20 mill-use, and the increase in 2019-20 beginning stocks, pushed the forecast for 2019-20 ending stocks higher.

ICAC said the increase in global stocks will exert “further downward pressure on prices.”