News

Price decreases over the past month indicate that demand-related concerns have been winning the contest between the competing storylines involving a weaker downstream outlook and lower production expectations in a couple key cotton-growing countries.

The decline in Chinese prices relative to those from the rest of the world may affect trade in the new crop year. China is normally the world’s largest importer of both cotton fiber and yarn. However, significantly lower domestic prices encourage consumption of domestically grown fiber and should discourage imports.

In the U.S., consumer spending on clothing has been flat for the past year. However, it has been holding at levels that are 25% higher than they were in 2019. If U.S. consumers pull back on clothing purchases, it may hit the market just as retailers have caught up with consumer demand after the onset of the shipping crisis.

The breadth of losses throughout the commodity sector suggests a sea change in investor sentiment for the entire category. The effects of inflation, the withdrawal of stimulus, rising interest rates, and concerns about a possible recession could all be reasons explaining a reversal of speculative bets, and all could be contributors to the losses.

The war in Europe has contributed to the rise in input costs and reduced the availability of crops like wheat and corn. These crops can compete with cotton for acreage and may lend some support to cotton prices.