The cotton market has recently been on a “rocky road,” as numerous supply and demand impacts have intersected to create volatility, according to Cotton Incorporated’s senior economist Jon Devine. During a one-on-one conversation with Sourcing Journal founder and president Edward Hertzman at Sourcing Journal’s Fall Summit, Devine explained the recent history and outlook for cotton and other raw materials.
Low prices during the early pandemic transitioned to climbing cotton values in 2021. Later that year, there was instability in pricing partly due to concerns about the cost of shipping. Then early in 2022, Russia’s invasion of Ukraine had a two-pronged effect: At first demand worries shrank prices, but then cotton costs rose alongside other agricultural products. Although Ukraine and Russia are not large cotton farmers, the nations grow products like wheat and corn that contend with cotton for farmland elsewhere. In early June through early July, cotton prices fell around 25 to 30 percent as “investors out there took a look at economic conditions and decided that they wanted to pull out of commodities.”
Prices then rose again in response to lowered crop yield expectations in late summer. One aspect affecting supply is droughts in West Texas, a major cotton growing area. As Devine pointed out, cotton doesn’t require a lot of water and it can be cultivated without irrigation in places that cannot support trees. However, areas in West Texas which average around 20 inches of rain a year, saw just two inches of rain in the nine months that preceded this year’s crop. Also impacting the supply side is massive flooding in Pakistan.
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While much attention has been put on production issues in these regions, Devine noted that supply is actually up in markets including Australia, Brazil, India and China. “The world as a whole is growing more cotton this year than it did last year,” he said.
Most recently, demand has been the biggest worry. Devine said that the same week that Pakistan flooded, cotton prices fell 10 percent. “Cotton prices have corrected,” he said. “Demand concerns are winning the argument in the price battle; I think that they probably will continue to for the next several months.”
Hertzman pointed out that lower average prices don’t necessarily mean immediate cost reductions for brands at the mill or manufacturer level. Devine told attendees to “remember that mills have inventory.” He added, “It will depend on where you’re pulling from and who you’re working with and what their pricing strategy was.”
Another factor shaping cotton sourcing is legislation such as the United States’ Uyghur Forced Labor Prevention Act that targets goods coming from China’s Xinjiang Uyghur Autonomous Region. China produces about a quarter of the world’s cotton, but Devine said there has been a 5 percentage point decrease in sourcing from the nation this year compared to 2021. He noted that rather than fiber or yarn, cotton is mainly exported from China in fabric form. “If you’re doing some sourcing, particularly in Southeast Asia, maybe pay attention to where that fabric was derived from, because it very well could have come from China,” he said.
Other fibers—including polyester and viscose—are facing the same demand challenges as cotton. But they are experiencing less price volatility, in part because they are made from multiple resources and inputs rather than being reliant on a single raw material for production.
One area to watch is geopolitics. In addition to being a major cotton producer, China manufactures about 81 percent of the world’s polyester, and there is significant synthetic production in Taiwan. If China were to invade Taiwan, this source could be impacted. “If we do see some sort of incursion happen around Taiwan, it could lead to sanctions, potentially bans, restrictions on trade activity,” Devine said.