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Cotton Prices Edge Up in January, but Uncertainty Looms

Cotton prices edged up in January, finishing the month at 82 cents per pound, only a penny higher than the December month-end price. Although demand firmed late in the month due to pre-holiday buying in China, uncertainly around global production and long-term demand in Asia continue to put downward pressure on prices.

The seven-market U.S. average spot price rose 1.6% in the five week period from December 27, 2013 to January 31, 2014, but remains well off the 12-month high of 89 cents reached in August.

Strong demand from Chinese yarn producers helped buoy prices. China began to release its Tariff Rate Quota, which allows buyers to import foreign cotton at a very low tariff rate.

Indian producers continue to benefitting from the weak rupee, which is helping to stimulate demand for exports, particularly to China. Demand from Vietnam and Indonesia was also strong.

Uncertainty remains as to how and when the Chinese government will decrease or cease its cotton buying program, which was implemented to support domestic prices. It’s also unclear how big China’s cotton crop will be in the coming season. Planting decisions are expected to be made in early February.