Historical highs for cotton prices
After nearly a decade of record or near record production in the US and on a global scale, sizable supplies developed. For instance, from 2004/05 to 2007/08 crop year, world ending stocks ranged from 60.7 to 62.1 mln bales which were multi-decade highs. In that same time frame, US stocks were also on the high side ranging from 5.5 to 10 million bales of the previous 15 years.
Due to plentiful supplies, mills began adopting retailers’ approach to inventory with their “just in time” delivery system. Meaning, do not buy it until you need it or something to that effect resulting in low stocks of raw cotton at the mill especially in making the transition from one crop year to the next.
In 2008 and 2009, high grain/oilseed prices pulled acres out of cotton in nearly every major producing country and poor weather in 2009 in the US and India resulted in the 6th lowest world crop since 2003.
Also occurring in 2009 was a rebound in cotton usage since consumers began to shop again after staying home as the longest recession since the 1920’s began to fade. An empty pipeline and a resurgence in cotton demand by mills resulted in pulling world stocks down by 28% to 43.7 mln, a decline of nearly 17 mln bales.
The impact of a smaller crop in 2009 (6th smallest since 2003) and significant improvement in demand (3rd largest on record) started a rally with cotton prices from a multi-year low of in the fall of 2008 to this past spring rising to upper end of a 15-year range.
Of course, we did not know all of this until recently as strong demand became apparent only after very strong prices reflected chronically short inventories in countries such as Pakistan and then India exacerbating an already precarious situation.
As for the new crop year, cotton producers responded to higher prices of the past 12 months by planting more cotton and by mid-summer, US and foreign cotton production looked healthy with only a few trouble spots but by August, all of that changed.
Pakistan saw monsoonal weather develop on a scale that was historical in nature severely damaging crops including cotton. Ultimately, their cotton crop would drop by 13% setting off a daisy chain of events. Why, Pakistan is one of the earliest countries to harvest cotton in the northern hemisphere allowing them to export some of their crop initially and then import as needed later in the season so mills outside of Pakistan had come to depend on their exports. However, Pakistani mills had to wait on the flood waters to recede before producers could begin picking and they had turned to their closest neighbor India for cotton.