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Cotton Prices Spike 4% in August

The seven-market U.S. average cotton spot price increased by a surprising 4 percent in August, to $0.669 per pound, slightly recovering from July’s 15 percent plunge. News of a dramatic reduction in crop forecasts in Australia and China’s suspension of cotton sales from reserves may have helped buoy prices.

Reports of higher-than-expected worldwide supply forecasts and continued weakening demand for cotton apparel in key markets around the world have driven cotton prices down this year to their lowest levels since 2009.

China, the biggest supplier of the world’s apparel and its largest user of cotton, is 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. As of September 1, the Chinese government reportedly stopped buying cotton from farmers for national reserves and has also, at least for the time being, suspended sales from reserves.

The U.S., the world’s biggest cotton exporter, is expected to produce a large crop in the new season, which began last month. After many years of drought conditions, rain finally 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 remaining in warehouses worldwide at the end of the season is expected to reach an all-time high of 105.7 million bales, further contributing to the growing worldwide glut of the fiber. U.S. exports of cotton remains strong in August.

However, the cotton harvest in Australia is expected to plummet by up to 50 percent in the 2014-2015 season due to severe drought conditions in Queensland and other parts of the country. The third largest exporter of cotton could see a drop in production to 2-2.5 million bales from 4 million bales last season.

Cotton prices in India and Pakistan remained relatively firm during the month in anticipation of new crop arrivals beginning in October.