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Cotton Outlook 2022: Debating Demand and Disruption

With demand still high and harvest issues impacting output, sourcing cotton will continue to be tricky going into 2022. That’s the word from representatives from the National Cotton Council, Supima, and men’s clothier J. Hilburn at last week’s virtual Material Changes Conference.

A reduced harvest in 2020 coupled with increased demand in the wake of the pandemic resulted in shortages, and a delayed harvest in 2021 along with other issues have further complicated the cotton supply chain.

2021 production is estimated to be 18.2 million bales, which is three-and-a-half million bales higher than last year,” said Dr. Jody Campiche, vice president, economics and policy analysis for the National Cotton Council. “But as we look at harvests, we are behind where we generally are—we have about 70 percent of the acreage harvested so far.”

While the Southwest enjoyed better crop conditions this year, which led to a reduced rate of unharvested cotton, droughts in the West have offset that gain.

“There have been a lot of challenges in the West that have been impacting and affecting the market for a while,” said Supima president Marc Lewkowitz. “Water allowances are tight and those conditions are going to continue to persist for a while.

Lewkowitz said cotton farmers in California need a tremendous amount of water in the winter season to have cotton delivered on time the following season. And persistent droughts have set those farms deep into a water deficit.

“We need to see at least 10 years’ worth of snow and precipitation to regulate the water issue in California,” he said.

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Looking at the global market, while some countries such as Pakistan have seen an increase in output, global demand has outpaced those gains, impacting imports and exports.

“In Pakistan, we’ve seen a rebound this year, but not quite back to levels of five to six years ago,” Campiche said. “This has increased countries like Pakistan’s reliance on imports and exports from the U.S.”

Campiche said China’s production is estimated to be almost three million bales lower this year, putting a strain on availability and increasing the need for imports. A significant portion of those imports will come from Brazil, which China turned to in the wake of the trade war with the U.S., but Campiche said the U.S. has actually regained the market share that China lost during that time.

However, lingering tensions between China and Australia will likely impact the latter’s cotton imports to the former, meaning the Australian crop—which enjoyed higher production this year—is available to other markets.

And while the U.S. passed legislation this year to ban imports of cotton from China’s Xinjiang region due to suspected human-rights abuses, Campiche said that won’t likely have an impact on global prices.

“I don’t know that this ban on cotton from China is causing increases in prices, but we’re seeing an increase in prices across the world and across the board due to increased demand,” she said.

Those increased prices and supply chain issues have led some mills to change the way they operate to be able to produce product more efficiently. Lewkowitz said that’s been particularly important leading up to the holiday selling season.

“We’re seeing mills realize they need to maintain inventory because of the logistics issues and the consumption is so high,” he said. “We’re seeing brands online and physical retail brands being preemptive in their messaging, saying, ‘the demand is strong, and we’re trying to get products, but please don’t wait until the last minute to do your shopping.’”

Campiche said that as demand continues to soar, cotton prices will remain higher. But as supply catches up to meet that demand, there’s a possibility demand will decrease under the weight of price increases.

“With the late harvest finally catching up, the next several weeks will give us a better idea of the effect of higher prices on demand,” she said. “Those higher price levels along with a strong U.S. dollar, we’ll be looking for signs of decreased demand.”

And while that’s definitely on their radar, along with mills looking for alternative fibers, Campiche said for the time being, the desire for cotton remains strong.

“In the short term, we always start looking at when cotton prices are above the dollar mark and we look at potential switches in fibers,” she said. “And we’re not seeing that yet—we’re seeing great continued demand for cotton.”