Cotton prices are in a slump — and speculators’ short positions have soared — as worries about declining demand due to a slowing global economy eclipse tightening supplies resulting from cotton production problems in the top growing regions of the US, China, and India.
In the US, the third-largest producer, farmers are expected to plant 18% fewer acres to cotton this year, one of the biggest cotton acreage declines this century. The US also is the No. 1 exporter of cotton, and a smaller US crop will have an outsize effect on global exportable supplies.
West Texas, the largest cotton producing region in the US, continues to battle “severe” drought as measured by the Gro Drought Index (GDI) weighted for acres planted to cotton using Gro’s Climate Risk Navigator for Agriculture. GDI readings are a strong predictor of abandoned acres in Texas’ cotton-growing areas, a Gro analysis has shown.
Drought also is hitting China’s cotton crop, the top producer of cotton worldwide. The Gro Drought Index is at its second-highest level in more than two decades in Xinjiang province, which grows about 90% of the country’s crop, as seen in this Gro display. (International sanctions ban the import of Chinese products that contain fiber produced in Xinjiang.)
China also imports about 20% of the cotton used by its textile industry and any setback to domestic cotton production, which is currently being planted, could increase import demands. The US is historically one of the largest suppliers of cotton to China, exporting over 800,000 tonnes valued at nearly $1.3 billion in 2021.
In India, the No. 2 cotton producer, back-to-back years of stagnant production forced the country to import cotton. Exports have historically exceeded imports by a significant margin, and the last time imports outnumbered was nearly 20 years ago.
Last year’s below-average rainfall at the start of India’s monsoon, followed by heavy rains from Cyclone Gulab in the fall, left production for 2022/23 10% lower than the preceding five-year average. Farmers are currently planting cotton for the 2023/24 marketing year and it is expected planted area will decline year over year as acres are shifted instead to higher return crops such as oilseeds and pulses. The expected onset of El Niño conditions, which tend to bring lower rainfall and higher temperatures to India, could also hurt cotton production.
The International Monetary Fund and World Bank have both downgraded forecasts for global economic growth in 2023, with much of the slowdown centered in advanced economies. High inflation rates also are forecast to persist, a scenario that is expected to damp consumer demand for cotton products.