Tracking Cotton Demand Can Be Complicated

While much of the market’s attention is focused on the sharp drop in 2007 U.S. cotton acreage and a widely expected decline in 2008, we must not forget there is another side of the equation that determines prices. Ultimately, one can argue that demand is the more important side of the equation. There must be a demand for cotton. Otherwise, there would be no need to plant and produce the fiber. Stronger or weaker demand will send price signals to producers and induce either more or less production. That’s simple marketplace economics at work.

Accurately gauging cotton demand, however, is easier said than done. There are a number of uncertainties that come into play at different levels of the market. Without fully examining all of the links of the chain, we can look at the textile mills which buy the raw fiber to process into yarn and the consumer who buys the finished product at local department stores. At the risk of getting too far into the weeds, it is important to look at recent demand trends and explore what the future may hold.

The encouraging news is that global demand for cotton is growing. For the three marketing years between August 1, 2004, and July 31, 2007, world mill demand grew at an average annual pace of 7.6% – the strongest growth for any 3-year period in the last 50 years. That translates into an additional 25 million bales of mill demand. However, the recent growth also has been accompanied by greater concentration. Bear in mind that mill demand for 131 countries is reported by USDA, but appreciable growth over the three-year period was limited to fewer than 20 countries. Significantly, the “Big Three” of China, India and Pakistan now account for two-thirds of total mill use. An unfortunate aspect of the relocation in mill demand is the continuing pressure on the U.S. textile industry. The United States now accounts for less than 5% of global mill demand.

However, textile mills’ demand is just one step towards supplying the type of products that consumers are willing to purchase. Cotton demand has a much different look at the consumer level with U.S. retail purchases leading the way. At 37 pounds-per-person, U.S. consumers are purchasing the equivalent of one of every five cotton textile and apparel products produced in the world. The U.S. accounts for less than 5% of world population but 20% of cotton retail demand. The challenge is to foster that type of demand in other countries, such as China and India, where the average consumer annually buys between 5 and 8 pounds of cotton products. Admittedly, their income levels prohibit them from approaching U.S. consumers’ level, but each additional pound of consumption across the combined population of the two countries results in another 5 million bales in demand. One question that is worth trying to find an answer to: Why the average consumer in Western Europe, who has income levels similar to the U.S. consumer, buys only half that of U.S. consumers?

One of the big questions facing the U.S. cotton industry is whether or not these trends will continue. There are some trends we would like continued and others changed. The recent growth in excess of 7% is a positive, but will it continue in the face of stronger cotton prices? As cotton prices increase relative to yarn values and polyester prices, one could expect these growth rates to slow. However, as long as global economies expand and incomes increase, demand should continue to move higher. The U.S. cotton industry’s challenge is to encourage that same level of demand growth in the 95% of the world’s population not in the U.S.

Caption:

Gary Adams, National Cotton Council

Leave a Reply

Market Analysis Stories
Market Analysis

Market Struggles with Black Swans and Bears

January 26, 2015

Although the bears have finally pulled prices into the 50s, the ability of old crop cotton to hold near the 60 cent level is phenomenal, given the current “Black Swan” financial market.

Market Analysis

Shurley on Cotton: Prices Struggle as New Round of Weakness Sets In

January 26, 2015

For the fourth time since last spring, prices have again failed to hold support as new negative forces overtake the market. The decline in prices is concerning, but is offset somewhat by a strong basis and premiums for quality and an increasing LDP/MLG.

Market Analysis

Plexus: Price Reacting to Non-Cotton Issues

January 16, 2015

Negative vibes from outside markets are overshadowing fairly constructive developments on the cotton front.

Market Analysis

Shurley on Cotton: Prices Just Treading Water

January 13, 2015

Recent activity has simply solidified the sideways pattern this market has been in for quite a while.

Market Analysis

Cotton Holds Its Own Amid Call for Lower Prices

January 11, 2015

Despite spending the week in positive territory, the market was thinly traded, but closed slightly higher and withstood the increasing value of the U.S. dollar. That’s a win for cotton, as it held its own despite a widespread call for lower prices.

Market Analysis

Plexus: Price Drop Pushes Market Back Into Sideways Mode

January 5, 2015

Recent price drops erased all gains from the previous nine sessions in one fell swoop, moving the market back into the 58-61 cents sideways range from which it tried to escape.

Market Analysis

Shurley on Cotton: Looking Back and Looking Ahead

December 24, 2014

It’s not news that 2014 turned out to be a disappointing year for many growers. I’m somewhat optimistic on the price outlook for 2015, but I don’t see much reason to start contracting for anything yet.

Around The Gin
Product News

Deltapine to Release Five Bollgard II XtendFlex Cotton Varieties

January 27, 2015

Following USDA deregulation of the Bollgard II XtendFlex cotton technology, Deltapine has announced plans to offer five new B2XF varieties for the 2015 season.

Product News

Bollgard II XtendFlex Cotton Poised for Limited Introduction

January 21, 2015

A limited introduction of Bollgard II XtendFlex cotton varieties is planned for the 2015 planting season through Deltapine and select licensees.

Product News

USDA Deregulates Dicamba-Tolerant Technologies for Cotton and Soybeans

January 16, 2015

The USDA has announced its decision to deregulate Bollgard II XtendFlex cotton and Roundup Ready 2 Xtend soybeans – Monsanto’s dicamba-tolerant trait technologies for those crops.

Product News

Bayer CropScience Anticipates Registration for New Cotton and Peanut Insecticide

January 15, 2015

Bayer CropScience anticipates the registration of Velum Total, the company’s newest insecticide/nematicide, for the 2015 cotton and peanut season in the Southeast.

Product News

New FiberMax and Stoneville Varieties for 2015 Feature GLT Technology

January 14, 2015

Bayer CropScience has announced four new FiberMax and Stoneville cotton varieties for the 2015 season.

Product News

PhytoGen Introduces 2015 Cotton Varieties

January 13, 2015

PhytoGen’s cottonseed portfolio for 2015 includes proven high yielding varieties, as well as new varieties featuring advanced insect, nematode and disease technologies.

Product News

Monsanto and FMC Renew and Broaden Crop Protection Agreement

January 8, 2015

Monsanto and FMC have agreed to extend and broaden their current relationship to help benefit cotton, corn and soybean growers through Roundup Ready PLUS Crop Management Solutions.

Product News

Deltapine Announces Class of 15 Cotton Varieties

December 16, 2014

Deltapine has announced two new high-yielding cotton varieties for its Class of 15, with several potential varieties awaiting regulatory approvals of the Bollgard II XtendFlex technologies.

Latest News
Market Analysis

Shurley on Cotton: Prices Struggle as New Round of Weakness Sets In

January 26, 2015

For the fourth time since last spring, prices have again failed to hold support as new negative forces overtake the market. The decline in prices is concerning, but is offset somewhat by a strong basis and premiums for quality and an increasing LDP/MLG.

Market Analysis

Market Struggles with Black Swans and Bears

January 26, 2015

Although the bears have finally pulled prices into the 50s, the ability of old crop cotton to hold near the 60 cent level is phenomenal, given the current “Black Swan” financial market.

Market Analysis

Plexus: Get Ready for a Few Weeks of Volatility

January 23, 2015

While the market situation for U.S. cotton may seem friendly, it is being overshadowed by the negative outlook for commodities stemming from a strong dollar, lower economic growth and fears of another financial meltdown.

Market Analysis

Bears Are Growling, but Market Holds Firm

January 19, 2015

The fifty-centers are still out there and are beginning to beat their drums louder and louder, but the current trading range has proven to be most resilient.

Market Analysis

Plexus: Price Reacting to Non-Cotton Issues

January 16, 2015

Negative vibes from outside markets are overshadowing fairly constructive developments on the cotton front.

Market Analysis

Shurley on Cotton: Prices Just Treading Water

January 13, 2015

Recent activity has simply solidified the sideways pattern this market has been in for quite a while.

Market Analysis

Cotton Holds Its Own Amid Call for Lower Prices

January 11, 2015

Despite spending the week in positive territory, the market was thinly traded, but closed slightly higher and withstood the increasing value of the U.S. dollar. That’s a win for cotton, as it held its own despite a widespread call for lower prices.

Market Analysis

Plexus: Price Drop Pushes Market Back Into Sideways Mode

January 5, 2015

Recent price drops erased all gains from the previous nine sessions in one fell swoop, moving the market back into the 58-61 cents sideways range from which it tried to escape.

Market Analysis

Shurley on Cotton: Looking Back and Looking Ahead

December 24, 2014

It’s not news that 2014 turned out to be a disappointing year for many growers. I’m somewhat optimistic on the price outlook for 2015, but I don’t see much reason to start contracting for anything yet.

Market Analysis

Current Market Level Holding Its Ground

December 19, 2014

The market’s ability to hold its current level has overshadowed the fact that cash prices around the world have firmed a bit, signaling a stronger basis position for most growths.

Market Analysis

Plexus: Slight Upward Bias in a Sideways Market

December 19, 2014

The market appears to be holding in a sideways to slightly higher range between 59 and 63 cents. But don’t rule out spikes to higher levels on spec short covering.

Market Analysis

Market Bumps Up on News of Smaller U.S. Crop Numbers

December 15, 2014

USDA’s lower projections for U.S. cotton production should strengthen the current global demand shift in favor of U.S. cotton. The implication is a relative higher price.

Market Analysis

Cotton Market is Ripe for a Rally

December 5, 2014

Current price consolidation activity has helped uncover excellent demand. A short covering rally could possibly be triggered sooner than later.

Market Analysis

Plexus: Market Showing Signs of Life

December 5, 2014

After closing the previous 14 sessions in a very tight price band, March cotton started to break out to the upside, boosted by a firmer cash market and possible spec buying.

Market Analysis

Shurley on Cotton: New Round of Weakness Sets In

November 25, 2014

Merchants are now pricing cotton basis the March 2015 futures contract. But March futures – and all prices – are showing a new round of weakness.