Cotton prices hit extreme highs of AUD 490¢/kg in May before collapsing sharply back to 319¢/kg currently. What happened? And what is the outlook?

The Australian cotton harvest is tipped by ABARES to reach 5.2 million bales, or 1.2mmt for the 2022/23 season, 3% below the prior 2021/22 season. (Figure 1)

While Australia has enjoyed another year of excellent growing conditions, and huge crops, the snarls in our terminally constipated export logistics chain continue to cause problems.

The severe shortage of sea containers that is being experienced globally has had one Australian exporter resorting to export methods that have not been seen in Australia in living memory. Break bulk is a shipping method where cotton bales are loaded directly into the hold of a ship via cranes.

A major factor that pushed cotton prices so high this year was effectively constrained supply, coming from multiple sources of pressure, combined with considerable pent up consumer demand stemming to a return to normal as most countries exited from COVID related restrictions

The US Uighur forced labour prevention act imposed in 2020 has caused the use of cotton sourced from Xinjaing, China to be effectively restricted in several countries, including Bangladesh, Vietnam and Cambodia as they change practices to retain market access to the US.

Rising fears that the Indian government would bow to strong pressure from its domestic textile industry to ban the export of raw cotton caused already red-hot global cotton prices to be stoked even further.

While Australian producers reaped the benefits of an amazing season, in Texas, a major cotton growing area that typically represents 57% of the US’s 12.5m acres of cotton, prolonged drought and extreme temperatures has caused up over 32% of the original planted are to be abandoned, severely impacting production. The region has experienced some of the driest weather in 130 years suffering continuous 40C+ temperatures for over a month in June, and the majority of the crop is non-irrigated. The image attached alongside depicts some of the devastation being endured.

Despite all these constraints, combined with initial low stock levels causing tightness in the market and an overcooked price earlier this year, pessimism in relation to future demand, plus a generalized fall in agricultural commodity prices has hit the market hard, with the decrease in usage exceeding the substantial decline in supply. The result was that nearby cotton prices fell to levels 34% below the high set in May. (Figure 2)

Futures markets are the next best thing to a price forecast, and the news there is also discouraging, displaying a steep downward curve. Cotton prices for DEC-22 contracts sit 6% lower than the nearby October contract, and DEC-23 delivery at 259¢/kg is 19% lower. (Figure 3)

What does it mean?

Fears of recession across the globe have knocked the stuffing out of cotton markets, as high inflation rates in many economies spur on moves by multiple reserve banks to enact interest rate rises, which will depress consumer demand. The forward curve indicates that cotton prices will track lower over the coming months and continue plummeting into next year.

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Key Points

  • Cotton market has crashed 34% in recent times
  • US cotton production severely hit by drought
  • Cotton market hit by falls in demand outlook in light of global recession fears.

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Data sources: Refinitiv, UGA,

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