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Cotton futures: Strong price fundamentals undermined by USD resurgence, dented demand

By  Yoke Wong

Edited by Vanessa Kintu

16:05, 23 November 2022

Cotton price forecast: What lies ahead for the soft commodity?
Cotton futures are derivatives with cotton as the underlying asset. Photo: Tero Vesalainen /

Improving sentiment amid lower output lifted the US cotton futures price over the past month as the market rebounded after hitting a near two-year low in October.

The benchmark Intercontinental Exchange (ICE) cotton contract for December delivery settled at 81.16 cents a pound on 21 November, up 2.6% a month earlier. In October, cotton futures price plunged to $72.11 on 23 October, the lowest since 27 December 2020 as global demand weakened on the looming recession.

However, early November saw the easing of China’s zero-Covid policy, with the Chinese government cutting the number of quarantine days. This lifted market sentiment on improving cotton demand in the world’s largest cotton yarn importer. 

China is also the largest consumer of cotton, accounting for one-third of total cotton mill use. Other major consumers are Bangladesh, Vietnam and Turkey.

Global players in cotton markets

The ICE cotton futures market started to rebound at the beginning of November and reached a high of $85.16/lbs before falling.

With a looming global recession expected to slash consumer demand for apparel, some questioned whether the recent cotton futures price rebound is sustainable. In its November market outlook report the US industry association Cotton Incorporated said:

“There are questions whether there will be enough demand to sustain prices at higher levels.  At each stage of the supply chain, there have been reports of increases in inventory and order reductions.  These reports of inventory accumulation precede what is expected to be a global economic downturn in 2023.

Prior to China tightening its Covid policy in March this year, pent-up consumer demand for clothing was pushing cotton futures prices higher. The soft commodity price surged to a decade high of $132.96/lbs on 16 May, cotton futures history data showed. 

However, demand and prices plunged when several Chinese provinces entered lockdown to combat rising Covid cases in the second and third quarter of 2022.

Cotton futures price chart

Are you interested to learn more about the market? Read this article for the recent cotton futures news, global supply and demand and analysts’ cotton futures price prediction.

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What are cotton futures?

Cotton futures are derivatives with cotton as the underlying asset. Prices of cotton are traded on exchanges such as ICE – part of New York Stock Exchange (NYSE) – in the US and the Multi Commodity Exchange of India (MCX) in India.

So, how do cotton futures work? Cotton futures traded on ICE are denominated in US dollars and cents per pound. According to the ICE Cotton futures contract specification, the grade of cotton traded is of strict low middling staple length. The minimum contract size is 50,000lbs net weight with a minimum price fluctuation of $5.00 per contract.

Settlement of the cotton futures contracts are by physical delivery in the exchange approved locations in the US.

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Falling Chinese cotton yarn imports pressures global market

According to data from the US Department of Agriculture (USDA), China is the world's largest cotton yarn importer and a major driver of cotton prices. Chinese spinning mills do not produce enough yarn for the production of fabric.

“From January to September 2022, China imports of cotton yarn fell by nearly half from the same period last year. This decline is equivalent to roughly 3.5 million bales of cotton lint and is the lowest level in more than a decade,” said USDA in its November World Markets and Trade report.

Amid lower Chinese imports, USDA forecast world cotton lint consumption could fall to 114.9 million bales in the marketing year of 2022/23, down 2.4 million from the previous year.

Global cotton production fell to 116.4 million bales in October, down 1.6 million bales from the previous month, USDA data showed. This was driven by lower output in Pakistan, which saw production fall for the third consecutive months as a result of the deadly floods in June and July.

Cotton futures price predictions

As of 23 November, algorithm-based Trading Economics expected average cotton prices to fall to 80.53 cent/lbs by the end of the fourth quarter and further to 71.51 in 12 months’ time.

In contrast, algorithm-based price prediction website Wallet Investor’s cotton futures forecast noted that the price could rise 101.68/lbs in the next 12 months and hit 164.11/lbs in five years’ time.


How are cotton futures priced?

Cotton futures are priced by bids and offers on electronic trading platforms.

Will cotton prices go up or down?

Nobody can say for sure whether cotton prices will go up or down in 2022. The market is volatile. Price movements could depend on supply and demand.

How to invest in cotton futures?

You can invest in cotton futures through brokers registered to trade on exchanges. However, given the settlement is by physical delivery, retail investors may prefer to gain exposure through investing in stocks of listed cotton producers, textile and fabric manufacturers.

Markets in this article

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