$1 Cotton: It's Back
Home Textiles Today Staff -- Home Textiles Today, 8/2/2011 5:44:45 AM
NEW YORK - A moment that seemed like it might never arrived is finally here. Cotton is back down to $1 per pound - and on some days has traded under a dollar.
New York cotton futures peeked in March at $2.19 per pound, and while they've fallen considerably since, they are still up sharply compared to last year.
So what's going on? HTT turned to two experts - John Robinson, professor and extension economist of cotton marketing at Texas A&M University; and Jon Devine, manager of economics and analysis for Cotton Inc. - for some perspective.
HTT: Why are cotton prices starting to fall?
Robinson: "I am not entirely sure. Some correction down from the 140 level [$1.40/lb.] was to be expected. The demand picture has gotten more uncertain. Still, I thought the uncertain supply situation in the United States combined with the late monsoon in India would keep prices from going below $1"
Devine: "Cotton prices have fallen because demand has slowed. Supplies remain low by historic standards, especially in the U.S., but if no one is interested in buying, there is no pressure on prices."
HTT: Is there any sense of where the prices will settle - or could the pricing take off again?
Robinson: "The technical analysts will talk about ‘support levels' and such, but it remains to be seem. Again, fundamentally, I expect prices to settle sometime soon. And yes, prices could rally again, especially if India's weather stays drier than normal."
Devine: "We believe that the increase in prices was much the result of supply and demand. World cotton harvests had been declining over the past several years because cotton acreage had been declining.
"The Chinese government maintains reserves of cotton to help stabilize prices. When prices are low, they will buy to refill reserves and help support the prices that farmers receive. When prices are high, they will sell from the reserves to help mills cope with cost pressure. Although the exact amount of cotton held by China is unknown (state secret), China did [sell] a lot of cotton from their reserves during the time period that cotton prices were increasing.
"It is widely thought that they do not have much cotton left in their reserves. They announced that they will look to refill their reserves at a price level that corresponds to futures prices somewhere around 100 cents/ lb. Chinese purchases should keep prices from falling much below this level this year."
HTT: What's the outlook for the crops now in the field and how will that impact pricing?
Robinson: "U.S. cotton is relatively poor compared to last year and compared to average ratings for this time of the summer. There will be record abandonment - i.e., unharvested [cotton] - in Texas and probably in the U.S., too."
Devine: "The world's four largest cotton producing countries (in order) are China, India, the US, and Pakistan. Crop conditions have been relatively good for each of these countries, with the exception of the US.
"Just over half of US cotton acreage is located in Texas, and Texas is facing the most severe drought conditions ever recorded (records back to 1895). As a result, the U.S. crop will be smaller than last year. However, the world crop is still expected to be the be largest ever. Any impacts from the smaller U.S. harvest would only be felt if demand rebounds."
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