The seven-market U.S. average cotton spot price dropped by 15 percent in July, to $0.6381 per pound last Friday, down from $0.75 on the last Friday in June. This is its lowest level since November 2009.
The precipitous decline began early in the month, after new reports of higher-than-expected worldwide supply forecasts and continued weakening demand for cotton apparel in key markets around the world surfaced.
China, the biggest supplier of the world’s apparel and its largest user of cotton, has been losing key apparel manufacturing programs to lower cost countries like Vietnam and Bangladesh. The country’s government is also sitting on more than half of the world’s reserves of the fiber and has indicated it would begin to release large portions of those reserves to reduce cotton prices and ease some of the cost pressure its manufacturers are feeling.
However, prices are also falling in other worldwide markets like India and Pakistan, and demand is waning causing cotton stock levels to rise even further.
The United States, the world’s biggest cotton exporter, is expected to produce a large crop in the new season, which began last week. After many years of drought conditions, rain has arrived in Texas, the largest U.S. cotton growing region. U.S. government forecasters recently increased their estimate for U.S. cotton output in the new season by 10 percent to 16.5 million 480-pound bales, exceeding prior market expectations. The amount of cotton left over in warehouses worldwide at the end of the season is expected to reach an all-time high of 105.7 million bales.