Cotton: large stockpiles are driving prices down

While the world's cotton stockpiles this year will be the highest in 25 years, the price of the raw material for delivery in July fell to 77.16 cents per pound last weekend.

This fall in prices coincides with a communication from the U.S. Department of Agriculture, which, announced on May 10th an increase of 10% in national stockpiles to 73.7 million bales for 2012/2013. This year, 122.84 million bales are expected to be produced worldwide, the highest number seen for a quarter century. This is an increase in supply against which demand simply can not maintain prices: the International Cotton Advisory Committee (ICAC) is therefore counting on a decline of 18% in global cotton imports.

This fall in prices preceded a fall of 7% in global production, as announced by the ICAC for 2012/2013. The area dedicated to the cultivation of cotton is thus also shrinking in response to falling prices. Between October 2008 and March 2011, the price of a pound of cotton went from 42.04 cents to 2.27 dollars, its highest recorded price. This has attracted many cultivators, leading them to believe that the current drop is actually setting the stage for a future rise in the price.

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