Cotton prices increased this summer and have been holding onto levels that are a little higher than they were a year ago. The recent bump in prices can be attributed to several factors including seasonality, a unique situation involving India and Pakistan, as well as certain aspects related to Chinese cotton policy.
Nearly 85 percent of the world’s cotton is produced north of the equator. With every cotton farm or cotton-producing country getting only one harvest per year, there is seasonality in supply.For this reason, the market is susceptible to supply-related concerns in the summer and early fall. The price movement that occurred over the past several months can be seen as a response to tightness in warehoused supply in certain countries and accessibility issues in others.
Because of a reduction in acreage and its own set of challenging growing conditions last year, India’s surplus of production was comparatively small in 2015-16 — down 60 percent relative to the 2014-15 crop year. With cotton flowing across the border to Pakistan, India’s exports rose 40 percent at the same time that there was less cotton available. Correspondingly, there was not a lot of warehoused supply in India this summer. This led to sharp increases in Indian prices, with values for domestically produced fiber rising 25 cents per pound, or 40 percent, between the spring and summer months. India, the world’s second largest exporter, also had to look to the United States and West Africa for supply in recent months。Both India and Pakistan are expected to enjoy better growing conditions this year, and the increase in production already has calmed supply-related fears in the region. In addition, most major exporters — including the United States, Australia, Brazil, and the cotton producers in West Africa — are expected not only to grow more cotton but also to finish 2016-17 with more fiber in storage than they began the crop year with. This increase in available supply suggests flat to lower prices outside China as the harvesting period progresses.