Volatility and a Reduced US Crop Are Casting a Shadow on the New 2022/23 Season


For Immediate Release 
Date Posted: 2 August 2022
Executive Summary
Highlights from the August 2022 Cotton This Month include:

  • Lack of rainfall in Texas, the primary production region in the USA, will severely limit the size of the country's 2022/23 crop
  • Virtually all non-irrigated cotton in West Texas has been abandoned already and farmers are beginning to walk away from irrigated cotton, too
  • Macroeconomic conditions have spooked many speculators, causing a big drop in prices
  • An actual global recession isn't needed to shake up the markets; fear that there will be a recession could be enough to reduce cotton demand  

The International Cotton Advisory Committee (ICAC) hopes you enjoyed the brief period of calm we saw over the last two months of the 2021/22 season, because those days are over. As we open the 2022/23 season, the cotton market is looking at a very uncertain future over the next few months.

The first issue is the collapse of the crop in West Texas, which produces the majority of cotton for the United States, the world's largest exporter. Drought has prompted farmers to abandon virtually all non-irrigated cotton and now they're beginning to walk away from the irrigated crop, too. It's possible the deficit could be mitigated by good crops in the world's other top-producing countries but there's no guarantee that will happen.

Making the situation even more explosive, jittery speculators and investment firms — worried about a global recession — are driving prices down. This is an especially dangerous development because we don't need to go into a global recession to cause problems; fear that we might go into a recession is sufficient to wreak havoc in cotton markets. 

Buckle yourself in because 2022/23 looks like it's going to be a bumpy ride.

Price projections[1]
The Secretariat is temporarily suspending publication of the price projections. We will re-evaluate the price situation in September and determine if we should resume price forecast projection modelling. High volatility and extenuating circumstances in global markets make it difficult for any modelling framework to produce accurate and useful information. Please note that this is only a temporary pause and as soon as we are confident in the model data, we will release projections. From a historical perspective, the only other time the price model was suspended was during the 2010/11 season of unprecedented high price and volatility.

[1] The price projection for 2022/23 is based on the ending stocks-to-mill use ratio in the world-less-China in 2019/20 (estimate), in 2020/21 (estimate) and in 2021/22 (projection), on the ratio of Chinese net imports to world imports in 2020/21 (estimate) and 2021/22 (projection), and the average price in 2020/21. The projection reflects a 95% confidence interval.

Cotton This Month is published at the beginning of the month with the Cotton Update published mid-month. The Cotton Update, which is included in the Cotton This Month subscription, is a mid-month report with updated information on supply/demand estimates and prices. The next Cotton Update will be released on 15 August 2022. The next Cotton This Month will be released on 1 September 2022.
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Please contact the author, ICAC Data Scientist Matthew Looney, with questions on this report.

About the International Cotton Advisory Committee (ICAC)
Formed in 1939, the ICAC is an association of cotton producing, consuming and trading countries. It acts as a catalyst for change by helping member countries maintain a healthy world cotton economy; provides transparency to the world cotton market by serving as a clearinghouse for technical information on cotton production; and serves as a forum for discussing cotton issues of international significance. In addition, members can take advantage of the ICAC’s global network of cotton researchers, whose expertise covers the supply chain from farm to textile manufacturing, and have free access to its cutting-edge technologies like the voice-based app and virtual technology cotton training programme. Committed to ensuring cotton’s continued sustainability, the ICAC is the only intergovernmental commodity body covering cotton that is recognised by the United Nations. For more information, please visit www.icac.orgTwitter or LinkedIn