John Robinson, Extension economist, cotton marketing, Texas AgriLife Extension
The sliding cotton market has been diagnosed with weak demand for a couple of years. Will cotton demand return to normal? If so, when?
These are important questions since gradually increasing demand is generally thought to be a necessary condition for sustainably higher prices.
Consumption is the key variable that ultimately measures cotton demand on the cotton balance sheet. The chart shows world cotton consumption, in millions of bales per year, for the last 15 years. The first half of this historical data series mostly shows a steady uptrend. This reflects a pattern of cotton consumption that is growing with an increasing population combined with economic growth.
The year of the COVID-19 pandemic begins a very disrupted pattern of cotton consumption. The 2019-20 marketing year showed a large decline in cotton consumption, likely reflecting disruptions up and down the supply chain.
Then came the bullish stimulus influence when governments and central banks pumped money into their economies to stimulate economic growth. Generally, cotton consumption increases with rising GDP, and the stimulus period was no exception. But all that stimulus money in the economy led to steep inflation. So, those central banks raised interest rates to curb it.
Economic inflation is analogous to a disease in the body. Consumers were paying more for staples and cutting back on discretionary purchases, such as apparel. Raising interest rates slows economic growth, by design. Raising interest rates is analogous to chemotherapy; chemotherapy is better than cancer, but it’s tough medicine.
All of this was bad for cotton consumption, which fell again. Beginning in about 2022, we see what appears to be a resumption of an upward trend and perhaps a leveling off.
Will world consumption continue back on a normal upward trend? November’s World Agricultural Supply and Demand Estimates report reflected very little change in world consumption between September and November. This doesn’t reflect a bullish shift yet. Hopefully it will come.
For additional thoughts on these and other cotton marketing topics, please visit my weekly online newsletter at cottonmarketing.tamu.edu.
