Cotton has tumbled 23 percent this year, the most among 22 raw materials in the Bloomberg Commodity Spot Index, on concern that harvests will exceed use for a fifth straight year. The International Monetary Fund cut its outlook for 2014 global economic growth as expansions weaken from China to the U.S.
Cotton prices last traded around 50 cents a pound in April 2009. On Friday, cotton for delivery in December, the most actively traded contract on the ICE Futures U.S. exchange, fell 1.1%, to 65.35 cents a pound. It was the lowest closing price since Oct. 12, 2009, and down 3.5% for the week. The front-month contract, for October delivery, ended down 1.9%, at 65.16 cents a pound.
The U.S., the world’s biggest cotton exporter, is expected to produce a large crop in the season that begins Aug. 1. But global demand is likely to fall short, especially with top importer and consumer China wrapping up a 2½-year stockpiling program. U.S. government forecasters predict the amount of cotton left over in warehouses world-wide when the next season ends will reach an all-time high of 105.7 million bales.
Hanesbrands Inc. Chief Financial Officer Richard Moss said on a conference call that he expects a “challenging consumer spending environment” to persist, even as the Winston Salem, North Carolina-based company raised profit forecasts.
The U.S. Department of Agriculture this month said global cotton inventories next year will increase 5.1 percent from 2014, boosting its forecast from June.
In the season that starts Aug. 1, American farmers may collect 16.5 million bales, up from 12.91 million a year earlier, as a receding drought in Texas, the top producing state, boost prospects, the USDA projects.
For the past few years, China — the world’s biggest cotton importer — has been supporting cotton prices because it has been stockpiling vast reserves of the fiber. Meanwhile the U.S. — the world’s biggest cotton exporter — has seen its production limited during this same period due in large part to the severe drought in Texas and the Midwest.
According to USDA’s Texas cotton crop condition index, the crop is rated as 8 percent very poor, 15 percent poor, 40 percent fair, 27 percent good and 10 percent excellent. “Fortunately, in July most of the west Texas area is receiving much needed rainfall. In the Coastal Bend area and the Blacklands area of south Texas, where some of the most productive dryland exists, cotton is in above average condition.”
Moreover, cotton production in India, the world’s second-largest grower, is expected to hit an all-time high after monsoon rain delays caused farmers to switch out soybean and peanut crops, Bloomberg reports.
“There’s not a magical (support) level until the Chinese market finds its low. The market doesn’t have its floor … It’s a floating target,” Ed Jernigan, president and chief executive officer of Jernigan Global Commodities, said during the Ag Market network’s annual radio program from New York.