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Cotton Prices Remain Calm for Now, But Some Volatility Ahead

Following a rollercoaster year, cotton prices have stabilized, but some volatility remains in the forecast.

Spot prices for U.S. cotton averaged 62.46 cents per pound for the week ended Dec. 19, according to the U.S. Department of Agriculture (USDA). The weekly average was up from 61.60 the prior week, but down from 73.12 cents a year earlier, USDA reported.

Cotton Incorporated’s monthly analysis that came out in mid-December showed most benchmark prices were stable over the preceding month. The March New York futures contract held to values near 65 cents per pound, while the A Index, an average of global cotton prices, was steady at around 75 cents per pound.

The China Cotton Index consistently traded near 84 cents a pound, Cotton Inc. noted. Indian cotton prices were stable at around 71 cents a pound, while Pakistani prices fell to 69 cents per pound from 73 cents.

The instability caused by the U.S.-China trade dispute contributed to disturbances in import-export patterns, and whether a final agreement is reached or not, those shifts could have long-terms effects. Cotton Inc. said China’s imports of cotton fiber have declined in recent months–from August through October, China’s imports were 32 percent to 43 percent lower than one year ago.

“This is a remarkable shift relative to last crop year’s large increase in imports,” Cotton Inc. said. “In 2018-19, China imported 70 percent more cotton than in 2017-18. Several factors likely contributed to the reversal. One is the slowdown in the domestic economy and weaker domestic downstream demand. Another is the slowdown in external downstream demand due to tariffs and a slower global economy. A third contributor is that domestic cotton prices have been more attractive relative to imports than they generally are.”

This all follows a chaotic year for the global cotton sector.

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The International Cotton Advisory Council’s (ICAC) “Review of the World Situation,” said the 2018-19 season “featured rollercoaster prices, with decreasing production, area and yields.”

ICAC said global stocks at the start of the season were 1 percent higher than the previous season at an estimated 18.7 million tons. At 84 cents per pound, the international reference price of cotton was lower than the previous season’s ending average of 88 cents.

After a 99.5 cent per pound price at the start of the season, prices fell throughout the year, bottoming out near 50 cents per pound in early summer. The global area under cotton decreased 1 percent to 32.6 million hectares, while global yield fell 2 percent, but remained above the 10-year average. As a result, global production declined 3 percent to 25.7 million tons.

“Weakening economic growth amidst trade issues set the environment for a decrease in consumption, with a near 1 percent loss to 26.2 million tons,” ICAC said. “With consumption exceeding production, global ending stocks for the season decreased by 2 percent to 18.3 million tons.”

As ending stock levels in China lowered, the ratio of stocks held in China and stocks held outside of China inverted, with 52 percent of global stocks now being held outside of China.

“New uncertainties have emerged in addition to the usual risks facing agriculture,” ICAC said. “Following several years of relatively calm market conditions, world agricultural markets today face mounting risks, including policy uncertainty from trade tensions. Open, transparent and predictable trade is important for the cotton market and its role as an important commodity in the global economy.”