World Cotton Consumption Exceeds Production; Prices Begin to Rise

The world is on the verge of being swamped with cotton as a result of farmers taking advantage of favourable pricing to plant more and China flooding the market with its surplus from its strategic inventory.

The US Department of Agriculture estimates that starting this season on Aug 1st, global cotton output will rise by 6.9%, pushing stockpiles to a record high. The biggest exporters of cotton, American farmers, are predicted to have the biggest harvest in over a decade while Australia and India are also forecast to have crop increases.

Farmers planted more after cotton futures climbed 12% last year while the majority of other crops were stalled. This excess supply means that prices will now be moving towards the biggest loss, since August.

Lara Magnusen, a California based portfolio manager for Altegris Advisors LLC said that “The supply side should be sufficient, and if we see production climbing, cotton will see additional losses,”. However, on the other side, there is a concern that the recent reduction in China’s debt will affect global demand negatively and won’t be sufficient to meet the surplus.

Net-Wagers

Cotton futures dropped by 7.7% this month whereas prices move towards the first loss since December. Even though the USDA forecasts that the cotton market will have a deficit in this year’s season, Cotlook Ltd is in fact predicting a surplus.

Cotton Surplus Creates Higher Volatility

Nevertheless, farmers must take advantage of the growing season during summer in the US and be observant of adverse weather conditions which could divert production forecasts. China can still enter and surprise the market if they decide to increase their quotas due to the recent high demand.
No matter what happens with cotton prices, you can stay on top of the market with the MT4 platform that comes with all of STO’s accounts, with institutional spreads starting from 0.0 pips.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice

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