September Cotton Prices Fall to Lowest Level in Five Years

After rising by a surprising 4 percent in August, the seven-market U.S. average cotton spot price dropped by 6.4% in the five weeks ending October 3, to $0.6259 per pound. During the month of September, prices fell to their lowest levels since late 2009.

Reports of higher-than-expected worldwide supply forecasts and continued weakening demand for cotton apparel in key markets around the world have driven cotton prices down this year to their lowest levels since 2009, as have announcements from China on its 2014/2015 trade and subsidy policies.

China, the biggest supplier of the world’s apparel and its largest user of cotton, is sitting on more than half of the world’s reserves of the fiber and has indicated it would begin releasing large portions of those reserves to reduce cotton prices and ease some of the cost pressure its manufacturers are feeling. As of September 1, the Chinese government stopped buying cotton from farmers for national reserves. Later in the month it detailed plans for a direct subsidy to farmers, and announced that it would reduce cotton import quotas considerably to simulate demand for domestic fiber.

The U.S., the world’s biggest cotton exporter, is expected to produce a large crop in the new season that began in August. The USDA estimates that U.S. cotton output in the new season will be 16.5 million 480-pound bales, slightly below prior estimates because declining prices have caused farmers to reduce cotton planting in favor of other crops. The amount of cotton remaining in warehouses worldwide at the end of the season is expected to reach an all-time high of 105.7 million bales, further contributing to the growing worldwide glut of the fiber. U.S. exports of cotton remained strong in September.

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