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Cotton’s Wild August Ride

Cotton prices surged and then retreated in August as reports of stockpiling in China, the currency crisis in India, and concerns over the US crop yield all wrought a bit of temporary havoc on the global market.

After rising 15% in the first six months of the year, and remaining essentially flat at around 81 cents throughout July, the seven- market U.S. average spot price surged by eight cents in the first two weeks of August, then plunged, ending August at 80 cents per pound, 22% higher than year-ago levels.

The volatility in prices may very well continue for the next few months, since demand and supply trends can change quickly and have far-reaching results.

Demand for cotton, while strong in some markets like denim, remains slow in others. Fashion apparel in the U.S., Asia and Europe remains in a strong synthetic cycle that began when cotton prices were in the stratosphere.

According to a report released last month by the U.S. Department of Agriculture, there seems to be a global cotton glut. World inventories of the fiber have been climbing for the past few months. Significant rainfall in India is helping crop yields at the same time that the falling rupee is pushing export prices down.

Meanwhile, the Chinese government continues to stockpile cotton in an effort to support local farmers and buoy cotton prices. However, China’s cotton imports are expected to continue falling in favor of domestically grown fiber.

Improving field conditions in Texas and other U.S. growing regions has begun to ease the concern over U.S. crop yields. However, U.S. cotton production for the 2013-2014 season is expected to decline by as much as 25% due to dry weather back in the Spring and more attractive prices of other crops.