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Cotton Inc. Economist: Raw Material Prices on See-Saw Path

Cotton prices remain somewhat volatile, but the long-term outlook bodes well for brands and retailers that use the raw material, according to Cotton Incorporated senior economist Jon Devine.

Speaking at a Cotton Incorporated workshop Tuesday titled, “Everything You’ve Heard About Cotton is Wrong,” co-hosted by Sourcing Journal, Devine explained the issues behind how cotton prices are determined and why the current situation is complicated.

“U.S. export sales are higher than they were last year, but what’s really important for us is the rate of export sales this spring,” he said. “Normally in the spring cotton merchants selling U.S. cotton start to slow down, but this year we had an acceleration. We saw very strong sales starting in the beginning of February and that has continued through the month of May. We’re at the point now that we’re beginning to scrape the barrel and U.S. supplies are a little bit limited.”

Devine noted that as farmers choose what crop to grow, also at play are low corn and soybean prices. This leads to farmers increasing cotton production given the strength of cotton prices, which were at 78.53 cents per pound for the week ending May 18, according to the U.S. Department of Agriculture. That represents the highest weekly average since June 19, 2014, when the average was 79.26 cents, and up from 74.33 last week and 59.81 cents a year ago, according to the USDA.

“We’re going to see increases in cotton production in the coming year,” Devine predicted. “Here in the U.S., it’s going to be very significant–we’re expecting a 20 percent increase in plantings; India is expected to have about a 20 percent increase in production–all the major producers are going to be growing more cotton next year”

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Devine said the early forecast for 2017 is for another year of growth.

“But despite that growth, we’re still expecting to have a shortfall of production relative to use,” he said. “Normally that means an increase of prices. But these are not normal times. We still have a tremendous amount of cotton storage around the world–a lot of that is located in China.”

Devine said longer term, Cotton Inc. expects prices to be lower and less volatile due to increases in acreage and production, but not before potential increases in the next couple of months due to some scarcity of supply.

Meanwhile, cotton farmers have become more efficient in how they grow the plants and reduce the environmental impact of their crops, said Ryan Kurtz, director of agriculture and environmental research at Cotton Inc.

Kurtz noted that areas with genetically modified seeds protect plants from insect damage. In turn, this leads to less pesticide use and greater energy efficiency and lowers greenhouse gas emissions.

In the area of water usage, he said over the last 35 years “we’ve decreased the amount of water we’re using on an acre of cotton by 40 percent and we’re producing 50 percent more cotton on that same acre.”

“We’re getting much more efficient and smarter in how we apply water,” added Kurtz, citing developments like censors that measure the amount of water in the soil and on the cotton leaves, helping to better manage irrigation and reduce water use.