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Cotton Prices Rise Unexpectedly in Early 2017

Cotton prices have increased by more than 5 cents per pound so far in 2017, or about 7.25%, according to data from the U.S. Department of Agriculture (USDA).

The seven-market U.S. average cotton spot price, which ended 2016 at just above 69 cents per pound, has increased gradually during the first nine weeks of the year, to 74.39 cents.

With the exception of a brief spike last August that was due to tight supplies in India and Pakistan as a result of drought conditions there, cotton prices are now at their highest level in two and a half years.

This steady increase has caught the industry by surprise, since cotton supplies were expected to loosen by now, helped by larger harvests and stable mill-use, causing higher ending stocks at the end of the 2016/2017 season than at the beginning.

And while the USDA has in fact increased its forecast for this season’s global cotton harvest in each of the last two months, mill-use forecasts were also adjusted higher, resulting in tighter ending stocks that sent spot prices higher.

In addition, the monetary reforms in India that have been put in place to increase transparency in its economy, including the highly publicized and controversial elimination of the most commonly used currency notes, have slowed the flow of cotton from the farm to international cotton merchants, putting upward pressure on prices.