Return to Normalcy? The Global Cotton Market Update
April 7, 2023

COVID-19, trade policies, war: the global cotton market is not unscathed, but it is resilient. Learn how supply & demand factors are influencing cotton prices and get a sneak peek at the potential for this year’s world production levels.

Economies around the world continue to face the aftershocks from major events that have rocked them in recent years. The list of these events includes reversals in trade policy established over the past several decades, the global pandemic, unprecedented stimulus, a rapid rise in inflation, steep increases in interest rates, and the first large-scale war in Europe in generations.


Individually, many of these developments could have been decade-defining. However, if we consider tariff increases as a starting point, this series of events began in 2018. That means all of this occurred in the span of five years. Given the frequency and significance of these world-changing events, volatility has been a feature of many financial markets, including cotton.


NY/ICE futures were depressed by trade tensions ahead of COVID. They then surged to levels over 150 cents/lb by the spring of 2022. Those gains were quickly erased, however: by October 2022, futures traded as low as 70 cents. In early November, they rebounded into the general range of 75 to 90 cents/lb, where they still remain.



Demand-Side Factors for the Cotton Market

Behind the volatility in cotton prices lies volatility in both supply and demand. From the demand side, on-and-off ordering has been problematic. During COVID, orders collapsed due to fears about the global economy and global health. After stimulus, orders rocketed higher as retailers and brands struggled to keep up with consumers who were flush with savings. The shipping crisis exacerbated the issue since it caused retailers to pay more to source goods and contributed to inflation. To cure inflation, central banks have been aggressively increasing interest rates. This has slowed expectations for economic growth and caused retailers and brands to become more cautious with their order placement.


Supply-Side Factors for the Cotton Market

This push and pull has just been on the demand side of the cotton market. On the supply side, weather events have created additional volatility. Over the past few years, La Nina has contributed to drier conditions in certain cotton-producing areas and wetter conditions in others, including Australia and Pakistan. Australia has benefited from the additional moisture, which brought the country out of drought and allowed two of the largest harvests in their history in 2021/22 and 2022/23. In Pakistan, unfortunately, the rains have not been beneficial. Floods wiped out much of this crop year’s harvest.


In the U.S., the effects of La Nina are inverted and associated with drier-than-average conditions in West Texas. West Texas is the largest growing region in the U.S., and the drought conditions experienced there over the past three years caused record abandonment in the state. (“Abandonment” means the crop is in such bad shape that growers do not spend the time or money to harvest it.) The forecasts for these high levels of abandonment generated fear that the U.S. supply would fall short. Since the U.S. is the world’s largest cotton exporter, this fear impacted global cotton prices.


While West Texas is important for U.S. production, there are sixteen other cotton-growing states that enjoyed strong yields. In the Southeast growing region, yields in every state except Alabama were up more than 100 lbs. relative to their five-year average. Strong yields in the Southeast and elsewhere across the U.S. Cotton Belt lifted the national yield per harvested acre to a record high in 2022/23. These strong yields pulled the U.S. harvest estimate successively higher throughout the fall months. Alongside the softening of demand, projections of a larger U.S. crop helped to calm prices.




Looking Ahead

Price levels are important this time of year, as cotton growers in northern hemisphere countries decide how they want to allocate their acreage. At values near 85 cents/lb, cotton prices remain a little higher than their long-term average. However, just like consumers, growers face inflation, and input costs have increased significantly over the past few years. In addition, prices for crops that can compete with cotton for acreage are further above their longer-term values. The combination of these factors suggests that cotton acreage will decrease for the upcoming 2023/24 crop year in the U.S. and other locations around the world.


A transition in weather patterns is underway, and it may influence the cotton supply situation. The National Oceanic and Atmospheric Administration (NOAA) has announced the end of La Nina and predicted that currently neutral conditions will give way to El Nino later this year. Inversely to La Nina, El Nino is associated with wetter weather in West Texas. If those rains arrive while cotton plants are maturing, it could add several million bales of production for the U.S. in the coming crop year. A return to average growing conditions in other locations, like Pakistan, could also add to global production. These weather-related gains could offset decreases in production due to lower acreage, and the USDA is expecting world production in 2023/24 to be virtually even with production in the current crop year.



Questions remain on the demand side, with the trajectory of economic growth uncertain. Persistent inflation and rising interest rates suggest further slowing, but labor markets and consumer spending have proven resilient. In the absence of a strong demand pull, however, gains in cotton prices may be muted unless a robust recovery gets underway.


Continue Learning

Learn more about the outlook for the cotton market by viewing Cotton Incorporated’s recent webinar with Senior Economist Jon Devine. He covers forecasts for planted acreage in the U.S. and around the world and analyzes the production outlook for 2023/24. Watch the webinar replay here.

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