Less than a fortnight after sanity seemed to be returning to world cotton prices, market is back to convulsing due tonervous jitters. Cotton prices are on the rise again after US Department of Agriculture released its monthly outlook over the weekend, downgrading home country’s output forecast for 2022-23 season by 28.3 percent versus last year.

If USDA’s fears come true, this will be the worst American cotton output in 13 years. The last time US cotton crop fell below 2.8 million metric tons (MMT) – precisely in August 2010 –world cotton prices rose from $1.86 to $5.06 per kg within nine months; highest world cotton prices in recorded history. Afterall, USA is world’s largest exporter of cotton, commanding over 33 percent share of world export market on average.

That’s alarming news for cotton importing countries. Although (overall) global output and consumption during 2022-23 marketing year is expected to remain mostly unfazed relative to last year, compensatory output is expected to come from other producers such as India and Turkey, both heavy users of the fiber in domestic downstream industry (spinning and weaving). That means fall in US production will dampen the world trade surplus, putting pressure on falling inventories across the globe.

Lest its forgotten, world ending stock-to-use ratio at 69 percent is at its lowest in five years. This includes Chinese state stocks of Xinjiang cotton, which have virtually been cut off from rest of the world. Regular readers will recall that until recently, Xinjiang region accounted for 85 percent of Chinese cotton production.The ban has come into effect as of June 2022 as US-based garments labels dropped fiber originating from the region over allegations of human rights abuse.

Moreover, the downward revision of US cotton forecast may only be the first of many to follow. ‘Tis still early into cotton harvest months across major fiber producing countries, and USDA is yet to incorporate revised estimates from around the globe. Already, news from farm suggests that Pakistan may witness significant downward correction in output this year due to extraordinary monsoon rainfall – however, USDA left its country forecast unchanged between July and August at 7 million bales (of 170kg) due to absence of credible numbers.

For local downstream value chain, its bad news but not the worst of the season. Local cotton prices are yet to face significant upwards pressure, as Pak rupee appreciation over last week has somewhat eroded cotton’s gains in the global market. Although cotton has gained 31 percent or (29 cts per lb) over the last thirty days in world market, local prices have only gained 20 percent in comparison. In fact, ex-gin prices are still below the peak last seen in June 2022, as fears of global recession cast shadow over demand for apparels and made-up textiles.

Going forward, it’s a tight rope between supply constraints and demand slowdown. If monsoon rains damage crops in more countries, all bets may be off and world prices may continue to see accelerated rise despite weak consumption dynamics. Ironically, that might be good news for local farmers – especially in Punjab – many of whom switched back to cotton after a long time and may record sizable return on their investment. Fingers crossed.