Jul 16, 2025 (MarketLine via COMTEX) --
Cotton prices have ticked up recently, but whataEUR(TM)s driving this? Is it a sign of even higher prices to come or just a temporary market spike, asks Robert P. Antoshak, vice president, global strategic sourcing at Grey Matter Concepts.
The cotton market seems to be napping. World prices, tracked by the Cotlook A Index, stayed around 78 cents a pound in MayAand hardly moved all spring. Nearby ICE futures are closer toA65 cents, showing a discount that makes growers wince and mills smile. A year ago, the board reached nearly 90 cents; four years back, it surpassed a dollar. Today, it barely whispers. So, whataEUR(TM)s keeping the market stable?
Inventories are high, but only slightly. The International Cotton Advisory Committee estimates that global production for the 2024/25 season will surpass consumption by approximately 300,000 tons, representing less than 2% of total trade. Spread across numerous ports, it becomes what merchants call aEURoejust-in-time surplusaEUR: enough bales to reassure buyers, but not enough to flood the market. Still, even a small surplus can dampen sentiment when the broader economy shifts from sprint to shuffle.
The OECD estimates that global GDP growth will be around 3% for 2025 and 2026, the slowest rate since the pandemic rebound. Consumers everywhere are feeling the pinch in their pay checks. When budgets are tightened, consumers often postpone discretionary purchases, such as clothing, and consumer purchasing decisions affect the entire textile supply chain. Mills see this in fewer orders for yarns and fabrics and, in turn, respond by buying less cotton. The pipeline rarely becomes overstocked; it just becomes thinner, enough to keep looms running. That cautious approach is why prices move sideways instead of dropping sharply.
Yet calm rarely lasts in cotton. A sideways chart in June can turn into a roller coaster by August. To understand how, start with the weakest link: demand.
The cotton market demand puzzleRetailers in the United States continue to contend with the tariff barrier established in 2018 and expanded over the past six years. Average duties on imported apparel remain well above 15%, more than triple the pre-Trump level. Higher tariffs ripple through the supply chain, decreasing demand for raw cotton. Consequently, brands respond by cutting purchase orders, prioritising just-in-time deliveries, and relying more on blended fabrics to ease cost pressures.
Across the Pacific, Chinese spinners deal with a soft currency, irregular export orders, and the same Western duties. A weaker yuan partially offsets higher US tariffs, but it also raises dollar-denominated cotton prices on local books. Margin compression is the polite term; in reality, it means machines are idle during some shifts. Europe faces its own challenges with a series of environmental rules. Whether a new shipment qualifies for aEURoegreen lanesaEUR depends on paperwork that is still evolving, so importers delay decisions and prefer to hold lighter inventories until clarity emerges.
History shows that global consumption rarely fails. Even during the 2020 lockdowns, mill use dropped 14% and then recovered half of that within 12 months. A small 3% change in mill demand only shifts world prices by around three to five cents. The bigger influence is sentiment: once mills believe rivals are restocking, they jump in, causing prices to rise before a single bale is loaded onto a truck. That shift aEUR" fear of being last to cover aEUR" could break the current stalemate later this summer if back-to-school sales come in with better-than-expected results.
Weather and politics: The wild cardsMother Nature remains the ultimate owner of cotton. A stray thunderstorm in West Texas can save half a crop; a week of dry winds can wipe it out. The US Southwest has the highest abandonment rate in the world, and the market treats every forecast update as gospel. This year, NOAA forecasters see anA82% chance of neutral ocean conditions through harvest, and only aA41% chance that La NiAa will arrive by winter. Neutral means average odds of rain aEUR" no guarantees, just fewer red flags.
Brazil, the fastest-growing exporter, introduces its own volatility. Second-crop cotton planted after soybeans continues to set records. If weather cooperates, Brazil could flood the market with over 4m tons, surpassing West African growth and pushing down Gulf Coast basis. However, logistics are just as important. A truckersaEUR(TM) strike or a late soybean harvest that crowds gins will tighten supply faster than any USDA table can show. Cotton that canaEUR(TM)t reach a port might as well not exist.
Then come policy shocks. Washington debates higher reference prices in its farm bill; Beijing cuts back the volume of state-reserve auctions to support domestic lint; BrasAlia considers reimbursing transport costs to satisfy farmers. Each change shifts costs slightly, but together they distort forward curves and discourage mills from entering long-term contracts. When policy and weather conflict, as they did in 2021 with drought in Texas and strong Chinese buying, prices skyrocket. The ingredients are there, even if the recipe hasnaEUR(TM)t been mixed yet.
World Balance Sheet (million tons)A2023/242024/252025/26 Proj*Production24.926.026.3Consumption24.725.725.9Surplus (+/-)+0.2+0.3+0.4Ending Stocks20.020.320.7
*Projection assuming trend yields and flat demand growth. Historical data from the USDA.
Small amounts on paper, big effect in practice: aA400,000-ton surplusAequals about 1.8m bales, nearly TexasaEUR(TM)s abandonment swing.
Price scenariosThe futures board seems to be steady in the mid-60s cents, but history shows that cotton prices can still move sharply. Below is a simple outlook for the Cotlook A Index, showing how quickly sentiment can shift.
Price Outlook (cents per pound)Base CaseWetter U.S., stronger salesBig crops, weaker economyJulaEUR"Sep aEUR(TM)2568aEUR"758060OctaEUR"Dec aEUR(TM)2570aEUR"808958JanaEUR"Mar aEUR(TM)2672aEUR"839260ApraEUR"Jun aEUR(TM)2674aEUR"859562
Base case: Fair weather, steady if uninspired demand. Prices fall into harvest, then gradually rise toward the mid-70s cents as mills restock ahead of Chinese New Year.
Bullish path: Texas drought or a sudden increase in consumer spending tightens supplies, pushing prices toward 90 cents.
Bearish path: A bumper Brazilian crop combined with sluggish retail sales floods warehouses, pulling prices below 60 cents.
CottonaEUR(TM)s elastic nature keeps price extremes self-correcting. Drop below 60 cents and US acreage declines; rise above 90 and polyester regains its cost advantage, reducing demand. The middle range (around 70 to 80 cents) is wide enough for trading but narrow enough to keep everyone alert.
Playing the hand: Strategy for the next yearGrowersAdislike selling below break-even, but the US loan programme and modest carry spreads soften the impact. A practical approach: sell a quarter of expected output now to cover cash flow, place the rest under loan, and buy inexpensive call options above 75 cents. If drought occurs and prices rise, the calls pay off; if prices stay steady, interest savings in the loan programme help cushion the downside.
MerchantsAshould cover nearby shipments while futures remain in the 60 cents, rolling hedges into carry where possible. For Q1 through Q2, limited-risk call spreads (like 70/85 cents) offer upside protection without excessive premium expense. In Pakistan and Bangladesh, where power outages hinder spinning, teams should mix cotton with polyester more aggressively; oil prices have fallen back to the low-70s dollars a barrel, making man-made fibres cheaper on a landed basis.
Mills and brandsAneed to manage currency just as much as fibre. The dollaraEUR(TM)s overall strength hides price increases for buyers invoiced in rupees or reais. Locking in exchange rates when booking cotton might be more important than fussing over a half-cent in lint. Regarding inventory, the saying still applies: aEURoeBuy when you canaEUR(TM)t get the stuff, not when you canaEUR(TM)t sell it.aEUR Waiting until shelves are nearly empty usually costs more than carrying an extra two weeks of yarn.
Bottom line: Boredom on borrowed timeCottonaEUR(TM)s quiet spell never lasts. Currently, comfortable inventories and a lukewarm economy suggest aAmid-70s cents season average, which is higher than todayaEUR(TM)s futures but lower than last yearaEUR(TM)s cash prices. However, the seeds of a bigger move are already planted: weather risk in Texas and Brazil, policy risk in Washington and Beijing, consumer risk in every mall worldwide. Any one of these could push prices 10 or 15 cents in either direction seemingly overnight.
Until then, think of boredom as rented space. Pay the rent by hedging carefully, watch the sky each morning, and keep enough powder dry to act when the market finally wakes up. Cotton, after all, rewards the patient aEUR" but only those ready to move when patience ends.
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COMTEX_467367899/2227/2025-07-16T09:45:34
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