Cotton Prices Fall as Global Supply Glut Looms

Cotton prices continued their downward slide this month, driven by expectations for another year of abundant global supply and swelling stockpiles. The latest monthly report from Cotton Incorporated paints a clear picture: a buyer's market is emerging for cotton.

Benchmark cotton futures contracts across the board, including the December NY/ICE contract and the A Index, experienced notable declines, reflecting the bearish sentiment. Prices have dipped to multi-year lows, with the A Index slipping below 80 cents/lb for the first time since December 2020.

This downward pressure stems from a confluence of factors. The USDA's most recent supply and demand estimates project a decrease in global mill use alongside a slight dip in production, resulting in a projected increase in world ending stocks for the 2024/25 marketing year. This build-up in inventory is especially notable considering the downward revision of historical stock figures for China, a major cotton consumer.

Looking ahead, the global cotton market is expected to remain awash in supply. Major exporting countries, including Brazil and Australia, are poised for potentially record-breaking harvests, further contributing to the surplus. Even with a slight decrease in US production estimates, this year’s harvest is still expected to be significantly larger than last year's.

While weaker economic data from the US raised concerns about demand, there are glimmers of hope. Europe's emergence from recession and signs of slowing inflation and a softening labor market in the US could bolster demand for cotton in the coming months.

However, the sheer volume of exportable cotton, coupled with uncertainties about the pace of demand recovery, will likely keep a lid on prices for the foreseeable future.