Cotton Prices Rising as India Overtakes China as Largest Cotton Producer

Cotton prices are on the rise after holding steady for the last few years.

Recently, cotton is up 16 percent, selling at around 70 cents to 72 cents a pound after hovering around 60 cents to 65 cents for the past two years. Upland cotton grown in the United States is selling for 80 cents to 85 cents a pound after bouncing around at 60 cents or below for most of the spring.

“Cotton prices started to tick up pretty much in the past month or two,” said Jon Devine, senior economist at Cotton Inc., the research and marketing company in North Carolina that represents upland cotton producers and importers of cotton and cotton textile products.

There are a number of reasons for the price hike. Pakistan, the world’s fourth-largest cotton producer, saw its crop decline last year by 500,000 million metric tons, or 2 million bales, due to bad weather and bugs. “Because their crop was down, they imported a lot more cotton from India,” Devine said. “And it looks like India’s shipments may have been too aggressive in sending their cotton to Pakistan. So now supplies have gotten tight in India, and Indian mills have looked to import cotton, which is pushing up prices.”

In China, lower cotton prices earlier this year and last year prompted farmers to plant other crops, which will result in a 3 percent to 4 percent reduction in cotton acreage planted there.

And then a number of trading firms are starting to buy up cotton, which has not been the norm. “In recent weeks, commodities are coming back in people’s financial portfolios and cotton is a commodity,” said Karin Malmstrom, director, Cotton Council International, for China and Northeast Asia, who recently presented a webinar on supply-chain dynamics. “The beginning stocks from May to June came down a bit. If the stocks are lower and demand is steady or higher, prices go up.”

Also, a July 12 report by the U.S. Department of Agriculture noted that clothing production is higher than cotton demand for the second year in a row. “The next day, prices went up,” said Jody Campiche, vice president of economics and policy analysis at the National Cotton Council of America.

The USDA estimates that global stockpiles will drop by 9 million bales to 91.29 million bales by July 2017, which is 3.4 million bales lower than the agency’s previous estimate because of increasing Chinese demand.

China is the largest cotton consumer in the world and still the largest fabric manufacturer. “For sourcing, China remains the most competitive and largest textile source,” Malmstrom said. “Nobody in the world to date has the capacity for volume and infrastructure. Even though wages are coming up, it remains a strong sourcing nation.”

But for the first time in recent memory, China’s cotton crop this year fell below 5 million metric tons while India produced 5.8 million metric tons. In 2012, China’s cotton harvest totaled 7.6 million metric tons.

“This is a significant change,” Malmstrom said. China is prioritizing food crops over cotton, which is grown primarily in Xinjiang province in the far west.

While the United States is the third-largest cotton producer in the world with a recent 2.8 million metric ton harvest, it is the No. 1 cotton exporter in the world with China historically being its main customer, followed by Turkey.

With consumption outpacing production, it is uncertain whether cotton prices will inch up or dip down to their previous level. Pakistan’s cotton harvest is expected to return to 2 million metric tons this after declining to 1.5 million tons last year. “They are one of the first to harvest in the next month or two,” Devine said.

But India’s cotton crop is looking uncertain. Because of the effect of El Niño, the torrential monsoonal rains that normally arrive between June and September have been delayed and rains have been lighter.

In the United States, the concern is about west Texas, which grows about 60 percent of the country’s cotton. Because the cotton fields there do not have irrigation, they are more dependent on rain. “They could use a nice soaking rain or two,” Devine said. “If not, we are going to have a problem with our production there.”

But no one thinks that cotton prices will go sky high like they did in early 2011, when cotton was selling for $2.27 a pound, the highest since the U.S. Civil War.

To cope with high cotton prices then, manufacturers added more polyester and rayon to their clothing, and big department stores raised their prices by $1 to $2 to maintain profit margins.