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Cotton Prices Drop Four Cents in July

Cotton prices have been on a wild ride since January, up one month and down the next, and the see-saw pattern continued in July.

According to data from the U.S. Department of Agriculture, the seven-market U.S. average cotton spot price fell by almost 6.5% in July, down more than $0.04 per pound from June’s month-end price, to $0.6079.

This follows a 4 percent increase in June, which was on the heels of an almost 3 percent drop in May.

Many analysts are viewing the 2014-2015 crop year as a period of transition following the reforms in Chinese policies emphasizing increased use of reserve supplies and sharply lower imports by the world’s largest user of cotton.

The world production estimate for the current season increased by 120,000 bales to 119 million, primarily due to a reduction in the Indian crop forecast. Global mill-use figures dropped by 610,000 bales, however, to 110.9 million bales, primarily due to a drop in Chinese demand, which explains the decline in prices. World cotton stocks are now expected to end the 2014-2015 season at 111 million bales, 1 percent higher than the 110 million previously forecasted.

Estimates for the 2015-2016 season reflect the expectation that world cotton production will decline by 7.6 million bales to 111.3 million next year. Although cotton mill-use is expected to increase by more than 4 million bales, since China is the world’s largest user of cotton, much of this will be supplied out of the country’s sizable cotton reserves. Softer demand is expected next year in Brazil, Bangladesh and Pakistan. These declines will be partially offset by expected increases in demand by Vietnam and India.