Sourcing Update: Surging Cotton Prices Expected to Level in 2022
December 16, 2021

Historically High Cotton Prices Will Likely Drive Higher Supply as Demand Decreases

Cotton prices have climbed to their highest levels in a decade, reaching values 60% higher than they were before the pandemic. But the reason has more to do with temporary sourcing constraints in a few key markets than world supply and demand.


As we look ahead to 2022, an old market saying may hold true: “The best cure for high prices is high prices.” Today’s high cotton prices should motivate higher acreage while simultaneously depressing demand, and the net effect would be an elevated supply that may bring lower prices.


World Cotton Prices in the Last 18 Months

Source: Cotlook


Global Cotton Production vs. Demand

World cotton production is forecast to be lower than global mill demand for a second consecutive crop year in 2021/22. Normally, this supply and demand dynamic would be an obvious explanation for cotton price increases, but we are not in normal times.


Demand: Global demand for cotton has surged in recent months. While some markets are slow to recover, others, like the one in the U.S., have shown a strong appetite for apparel. This has meant the global cotton supply chain has had to refill pipelines after the shutdown in activity caused by the pandemic.


Supply: The pandemic caused a massive 18 million cotton bale surplus in 2019/20 as spinning mills shuttered. The market has been making withdrawals from that addition, but the sum of production shortfalls in 2020/21 (9.2M bales) and 2021/22 (2.7M bales) is only about half of the production surplus in 2019/20.


World Cotton Production vs. Mill-Use Over the Last 3 Years



The net result across the last three years is that global cotton supply is about 10% higher than before the global pandemic, and prior to it, the world was not facing a shortage. Meaning, even though world demand has outstripped production for two consecutive years, there should have been enough cotton stock to provide for the recent rebound in demand.


U.S. Cotton Situation

The surge in cotton prices may be related to tightness in the U.S. market, which has significance globally because the U.S. is the world’s largest cotton exporter. Last crop year, U.S. cotton production was down 36% due to dry conditions in West Texas. This decline in cotton production paired with strong export demand from China caused the U.S. stocks to fall, resulting in one of the lowest stocks-to-use ratios that the U.S. has experienced in the last 20 years.


U.S. cotton production is expected to rebound for current 2021/22 harvest. However, that crop is still being collected, ginned and classed (as of early December 2021). It will take another month or two for that fiber to be ginned, classed, and prepared for shipment. Once the current crop’s cotton fiber becomes fully available to mills around the world, it could help alleviate cotton spinners’ near-term needs.


U.S. Cotton Stocks to Use Ratios



2022 Global Cotton Supply Outlook

Another important export market, Australia, has indicated a sharp decreased in available supply; industry officials recently reported that they have virtually sold out of available cotton supply. The short supply of high-quality, sustainable, machine-picked cotton form the U.S. and Australia—representing the fibers with highest value in the world cotton market—may be supporting higher cotton prices.


Forecasts for the upcoming crop year will begin to be released over the next several months. Higher prices can be expected to drive acreage higher and demand lower. The threat of an increase in stocks may weigh on prices. Outside market influences, including changes in interest rates and the macroeconomic environment may also pull the market lower.


The work we do is possible because of collaborations with researchers like these and partnerships with people all throughout the value chain. Ready to commit to sustainably produced cotton? Become a Cotton LEADS partner today. Interested in doing even more? Contact us for ideas to get the most out of sustainable cotton and your partnership with Cotton LEADS.

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