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U.S. Cotton Prices Firm in December

Cotton prices firmed in December, finishing the month at 81 cents per pound, more than a nickel higher than the November month-end price. Larger-than-expected global production and weakening demand in Asia continue to put downward pressure on prices.

The seven-market U.S. average spot price is ahead 15.5% on a year-to-date basis, but remains well off the 2013 high of 89 cents reached in August.

Although several months ago 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. U.S. cotton market experts are now predicting yields that top prior expectations.

Pakistan and India have been enjoying a firming of prices. India will have larger-than-expected crops due to an abundance of rain during monsoon season and clear weather during the harvest.  Indian producers are also benefitting from the weak rupee, which is helping to buoy exports.

The Chinese Government has been selling some of its cotton reserves, but continues to hoard a record amount of the fiber, totaling more than 60% of global stocks, according to Department of Agriculture estimates. China began buying up cotton in 2011 to support prices received by local growers, which ended up widening the gap between supply and demand. The world market is awaiting a decision from China on whether its cotton buying program will continue beyond 2014. Many experts believe that eventually, China will have to gradually liquidate its inventory and allow market forces to take hold and return supply and demand to equilibrium, which could send prices sliding by up to 10%.

Meanwhile, demand for cotton, while strong in some Asian countries, remains flat in China and the U.S. due to the slow apparel retail recovery and a fashion trend that favors synthetics.