Ron Smith 

Cotton consumption is declining at an alarming rate, and it’s the dominant force driving the market, two cotton market executives say.

Hank Reichle, president and CEO of Staplcotn in Greenwood, Miss., and Buddy Allen, president and CEO of American Cotton Shippers Association in Memphis, Tenn., agree that decreased global consumption is the prevailing factor.

Competition, foreign customers’ economic woes, and picky buyers play roles in capping cotton prices.

“Cotton’s less-than-desirable price today is not because we are growing too much cotton around the world. The problem is that too little of it is being spun by textile mills,” Reichle said.

The fundamentals have grown soft, Allen said.

“We've seen total fiber consumption not expanding of late the way it has historically,” Allen said. “Also, cotton losing market share to synthetic fibers curtails cotton consumption.”

Covid played a role, Reichle said.

“World cotton consumption was doing well right before the pandemic hit. It dropped very quickly but also recovered very quickly. In 2020 all through 2021 and part of 2022, people had a lot of money from the government stimulus,” Reichle said. “Businesses had a lot of money, and much of the supply chain had been shut down, so there wasn’t much inventory.”

He said consumption, aided by on-line retailing, returned before inventory could be created.

“We had drawn down heavily on inventories around the world, including apparel and home textiles,” Reichle said. “Consumption reached 123 million bales, about as high as we ever go.”

Economic sanity returned. Consumers turned to services and experiences instead of home goods and apparel. Reichle said retailers continued to sell but focused on working down inventories and approached replenishment cautiously.

Small crops

The market decline also coincides with lower production. “We never like to see a small crop in Texas or in the U.S,” Allen said. “But with the demand being weak, the timing probably fit as well as it could have. We've had  two small crops in a row in the U.S. Now, will the demand strengthen in time to process a more normal crop size?”

“We've had several things that limited our ability to gain market share,” Reichle said. “We've had two small crops.

Historically, that wouldn't be enough U.S. cotton. Also, the strong U.S. dollar hurts competitiveness in the export market.”

Reichle added that strong competition from Brazil and Australia resulted in the largest ever Southern Hemisphere cotton crop.

“We’re dealing with four factors: not as much to sell, more competition from the Southern Hemisphere, a strong U.S. dollar, and overall weak demand,” Reichle said.

Even with the market negatives, the U.S. has sold 62% of projected exports, which is on pace with the seven-year average for this time of year, Reichle said.

“We have had a good month selling cotton over the last four export reports, but very China-centric and not as broad based as we’d like to see,” Reichle said.

There’s been a recent change in consumption.

“We're seeing the Chinese taking the lion's share of purchases in recent weeks. That appears to be more than purchases directly for end-users or spinners but also a shift of state-owned and Chinese National Reserve consumption, possibly a trend from recycling stocks held by the Chinese reserve to accumulating stocks,” Allen said.

The global economy provides other challenges. Key markets face economic struggles. “Pakistan, for example, is facing problems, especially with U.S. dollar liquidity,” Reichle said. “Turkey has problems similar to Pakistan, and other problems as well, including very high inflation. Vietnam, another important market, bought a lot of Australian cotton because it was available and cheaper than U.S. cotton.”

Cost, not quality, is the chief factor in buying decisions. “People who are buying cotton now are looking for the best deal. As demand increases, buyers will focus more on grade and end-use products,” Allen said.

Sustainability

Sustainability is becoming more important in buyer preference.

“Over the next two to five years the ability to demonstrate sustainability will be important to maximize opportunities in the U.S. cotton industry,” Reichle said.

“We see tremendous investments being made by stakeholders in the value chain,” Alen said. “The U.S. cotton industry is fully invested through the U.S. Cotton Trust Protocol.

Allen said many of the U.S. merchandising firms he represents through the American Cotton Shippers Association made significant investments to establish proprietary regenerative ag programs.

He added that cotton farmers, merchandisers, and industry stakeholders continue to develop and create ways to maximize sustainability opportunities.

“As these markets are authenticated, as the value is fully appreciated, sustainability should demand a premium that flows through the entire value chain,” Allen said.

“Sustainability will be just as important as the traditional attributes of cotton — quality, availability, and delivery infrastructure,” Reichle said.

The cotton market will recover, Allen and Reichle contend.

“I am optimistic that at some point demand will recover,” Reichle said. “But until it does a small crop in the U.S. and other countries will have less impact on price than normal.”