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Cotton Prices Stabilize in October

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After dropping by more than 6 percent in September, cotton prices stabilized and actually rose a bit in October, according to the U.S. Department of Agriculture. The seven-market U.S. average cotton spot price increased by almost $0.02 to $0.635 per pound. However, the increase is not expected to continue. Lower futures prices indicate that there are softer market conditions ahead.

Most of the downward price pressure is due to an increase in worldwide supply of the fiber, not necessarily a decline in demand. Worldwide demand for cotton apparel outside of the sluggish U.S. and European markets is actually quite healthy.

Higher-than-expected worldwide supply forecasts and reduced demand for imported cotton in China due to changes in China’s trade and subsidy policies 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, has begun to release large portions of fiber reserves accumulated during the buying program it implemented to support prices. In September, the Chinese government stopped buying cotton from farmers for national reserves. Later in the month it detailed plans for a direct subsidy to farmers, and announced that it would reduce cotton import quotas considerably to simulate demand for domestic fiber.

The U.S., the world’s biggest cotton exporter, is expected to produce a large crop in the new season that began in August. The USDA has revised upward its estimate for the amount of cotton remaining in warehouses worldwide at the end of the season to a all-time high of 107.1 million bales, further contributing to the growing worldwide oversupply of the fiber.

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