The world cotton market has entered a new phase of uncertainty. World cotton prices, which thus far had been on a downward trajectory for the past thirty months, have now conclusively entered another period of volatility, where a clear direction may remain elusive for months to come.

Although global demand appeared to have cooled off after the post Covid boom, weighed down by stubborn inflation and the strategic decoupling from China. The world market now appears to be moving into stasis, with considerable risks to price stability.

Let’s start with the basics: historically, world cotton production has been distributed fairly evenly across four key regions: China, South Asia (India and Pakistan), the Western Hemisphere (mainly Brazil and the United States), with the remainder supplied by key players such as Australia and Turkey. While this fragmentation has provided a semblance of supply stability, the status quo is increasingly threatened by a myriad of economic and geopolitical shifts.

For the last two years, bears have dominated the world market due to stagnating global demand. With the global economy facing a pronounced slowdown, expectations for a robust recovery in cotton consumption were slim. Until recently, estimates of world demand hovered around 115 million bales—solidly average by recent historical standards—but far from enough to absorb the existing stockpiles and justify higher prices. China, the world’s largest cotton producer, consumer, and importer, remains in a holding pattern. High inventory carryover from last year means its import demand remains subdued, which means fewer purchasing surges from the world’s largest textile producer, exporter, and consumer. Given this backdrop, price pressures seem unlikely to abate in the near term, as Chinese cotton consumption remains weak.

Meanwhile, on the supply side, major exporters are sitting in a relatively comfortable position. Brazil and the United States have both harvested strong surpluses, and the two countries are poised to keep the world market well-stocked for the foreseeable future. But supply news out of South Asia is stirring up some concerns. India, a top global cotton producer, has managed to maintain production levels consistent with last year, but a twist in trade dynamics is throwing the market a curveball. For the first time in over a decade, India is set to become a net importer of cotton. Rising yarn prices within the country reflect this new demand pattern, which is largely fueled by the shifting of textile orders away from China. This shift has already benefited India’s textile industry but will also drive up domestic cotton consumption, potentially squeezing global supplies further.

In neighboring Pakistan, production has plummeted, though official USDA forecasts have yet to account for this decline. Should Pakistan’s output estimates of under five million bales are incorporated into the world supply position, it could have a pronounced impact on world cotton prices, particularly as the country competes with India for textile export orders. With tightening supplies from South Asia and weather risks looming large on the horizon, the world cotton market could see a rocky road ahead. The impending threat of El Niño, coupled with fears of water stress and drought conditions, is likely to constrain future supply. These factors have already prompted a downward revision of global carryover inventory estimates, further emphasizing the potential for supply shocks.

What does this mean for the price outlook? While a weak global economy dampens any near-term hopes for a demand-fueled rally, several factors could still push prices higher. If Pakistan’s production disappoints and India’s shift to a net importer status continues, the resulting supply pressure could lift prices out of their current $0.80 to $0.90 per lb range. Additionally, rising oil prices—particularly if the Middle East conflict escalates—could add inflationary pressure on cotton as transportation and input costs rise in tandem.

In sum, the world cotton market is walking a tightrope. While surplus stocks from Brazil and the U.S. may provide some breathing room in the immediate term, factors such as regional supply shifts, geopolitical instability, and the threat of adverse weather patterns all point to potential price volatility. Unless there is a collapse in demand from major textile export destinations in the EU and the U.S., cotton prices could soon make a play for the higher end of the current range, with the chance of breaking above it should more risks materialize. For those invested in the cotton industry, it’s time to brace for what could be a bumpy ride as the market navigates through a period of heightened uncertainty.