Cotton Market is a Supply/Demand Thing

Cotton futures have taken it in the shins the past few weeks and Gary Adams, Chief Economist with the National Cotton Council says it’s a supply/demand thing….for starters:

“If we look at the last few weeks, the supply and demand balance sheet for the global cotton market, the thing that really jumps out is the substantial increase in ending stocks of cotton for the 2011-2012 marketing year. The USDA is pushing that up to over 65 million bales by the end of this marketing year. They are also calling for another potential increase in the following marketing year. The mindset of the market is much different than a year ago, we no longer have any concerns about availability of cotton.”
 

And then there’s a couple of other factors in the world market, according to Adams:

“The other two factors over the last four weeks starts with China. They were an aggressive buyer of cotton for the first few months of this year, rebuilding their reserves by adding an additional 14 million bales. They are no longer doing that and in fact just holding steady, so that is less buying that is going on in the market. India also had a ban on their exports that they imposed in early March, they have recently relaxed that ban and are now allowing exports so those factors have contributed to the bearish tone over the last few weeks.” 
 

Adams explains that to turn the tide back to profitability, demand from mills and consumers as well needs to increase:

“We really need to focus on the demand side. If we look at this time last year when cotton prices were at very high levels, much higher than polyester prices and we lost some market share as people were moving away from cotton. Now we are getting back to where prices are more in line, so hopefully we will see some demand improvement in these months going forward.”
 

Ultimately, Adams believes that actions by China and India will push cotton futures:
 

“We will have to watch China and India. As the two largest players in the world market they have the ability to swing the market. That ultimately comes back and affects the price that growers receive. How China decides to administer their stock reserves policy, once they harvest this year’s crop will be critical to how the market will behave.” 

Gary Adams, Chief Economist with the National Cotton Council.
 


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