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Government Shutdown Weighs on Cotton Prices in October

Cotton prices dropped by almost 5 cents in October, finishing the month at 78.6 cents per pound. Larger-than-expected global production, weakening demand in Asia, and a lack of market information due to the U.S. government shutdown all caused prices to soften in the past several weeks.

The U.S. Department of Agriculture suspended the publication of U.S. prices during the first  two weeks of October during the government shutdown and, for the first time in 146 years, failed to publish its monthly crop report in October, fueling uncertainty over crop yields and causing speculators to temporarily exit the market.

The seven-market U.S. average spot price is ahead 18% on a year-to-date basis and compared to the same month last year.

Although commodities forecasters were expecting global production to fall in the coming year, particularly in the U.S., it now looks as if crops in key regions might be bigger than originally expected. India will have larger-than-expected crops due to an abundance of rain during monsoon season and clear weather during the harvest.  U.S. cotton market experts are now predicting yields that top prior expectations.

China has been stockpiling cotton, but may very well begin to start selling from its reserves in anticipation of further price declines. Importers in China are also nearing the time at which they need to use up import quotas before they expire.

Demand for cotton, while strong in some Asian countries, remains flat in China and the U.S. due to tepid economic growth and a fashion trend that favors synthetics.