With USDA projecting global cotton consumption during marketing year 2021-22 reaching its highest levels since 2007-08, good days are back for cotton traders. As a Business Recorder report says, cotton consumption is expected to reach 27 million metric tons by the end of next marketing year. In July this year, cotton prices reached the highest levels in nine years. As per World Bank’s commodity markets outlook report, prices of cotton ‘A’ index reached $2.15 per kg during the month and has stabilized since then.
Pandemic leads to rise in cotton prices
Since the great crash of April 2020, cotton prices have increased almost 55 per cent. They have grown over 30 per cent from pre-pandemic levels. Yet, a dispute persists amongst analysts over the duration of this boom period. Many analysts consider it as a byproduct of global supply chain disruptions. However, global cotton consumption had risen even during the COVID-19 period. In 2020-21, global cotton consumption increased 15 per cent as Chinese industries resumed operations and developing nations boosted textile exports. Cotton producing countries including India and China launched procurement operations programs to enhance strategic reserves and introduce new support schemes for farmers.
From February -July 2020, a decline in global area under cotton cultivation led to a 25 per cent fall in output in major exporting countries such as the US and Brazil. Output in countries including Australia and Pakistan also declined as extreme weather conditions ravaged crops.
Demand shift to increase price pressure
Future demand for cotton and cotton-based products is likely to shift to other textile exporting countries as the US Senate passes the Uyghur Forced Labor Prevention Act. The shift will benefit major yarn producing nations such as Vietnam, Bangladesh, Turkey, and Pakistan. However, it may also increase pressure on global cotton prices.
Earlier, surplus cotton produced by the US and Brazil was sufficient to meet the import demands of five countries including Bangladesh, Vietnam, Pakistan, Turkey, and India. The entry of Chinese importers, aiming to procure non-Xianjiang based cotton, has increased demand to its highest levels in over 13 years.
Buyers are willing to procure cotton at their highest prices. However, a boost in production capacities of India, Brazil and the US may help ease pressure on global cotton prices.