International cotton prices rose to 11-year high

The international price of cotton rose to an 11-year high. India, which ranks third in the world in terms of export share, is giving priority to domestic supply, and the expectation of starting to stop exporting and expanding imports has strengthened, and the signs of international supply shortage have strengthened. Production in the United States, the largest cotton producer, is expected to be reduced by drought. The high price may continue for a long time, and the upward pressure on the raw material cost of Japanese garment enterprises may intensify.

The New York futures (near-term contract), which has become an indicator, has strengthened its gains since late April, rising to about 155.95 cents/pound in early May, an increase of about 10% from a month ago. The increase since the end of 2021 has reached about 30%, hovering near the high since May 2011.

The trigger was a report that India, which accounts for more than 10 percent of world cotton exports, may stop exporting cotton. In India, in addition to rising resource prices, domestic cotton production is sluggish, and inflation such as rising clothing prices is serious. If India stops cotton exports, cotton previously exported to China will be sold in India, which will have the effect of curbing price increases. On the other hand, the view that the quantity of cotton supplied to the international market will be reduced has strengthened.

In late April, Indonesia announced a ban on palm oil exports in order to curb inflation, and international prices also rose. Many people believe that the same situation will occur in the cotton market.

The Indian government announced in April that it would withdraw import duties on cotton by the end of September. There is an expectation of increased overseas purchases to make up for domestic supply shortages. On the other hand, as the economy recovers from the new crown epidemic, world clothing production is recovering, and cotton demand is firm. Global shortages are strengthening.

In the United States, the world’s largest cotton producer, the risk of poor harvests due to abnormal weather is prominent. The U.S. government’s “drought monitor” showed that as of May 3, parts of the cotton-producing state of Texas experienced the most severe “abnormal drought”. Expectations that the U.S. will reduce cotton planting and increase soybean planting due to food shortages caused by the crisis in Ukraine are also pushing up prices.

Combined with a labor shortage in the logistics sector that has stalled shipments, cotton inventories are at low levels. The exchange-certified inventory, which usually reaches about tens of thousands of bales (1 bag is about 225 kilograms), dropped to 1,101 bales in early May, showing a clear shortage.

Cotton from South America such as Brazil has been on the market since spring, but the market has not received sufficient supply due to abnormal weather and tight shipping capacity there.

After the US Federal Open Market Committee (FOMC) meeting on May 4, the rise in cotton prices came to an end due to, among other effects, a sense of vigilance over a slowdown in the world economy caused by higher interest rates, but there were few voices predicting a rapid decline.

The impact of rising cotton prices will also spread to Japan. In addition to the rise in international prices, the rapid depreciation of the yen has also led to an increase in the purchase price of cotton in Japan. A professional trading company said, “Japanese clothing companies with weak cost-shifting ability may have to start raising prices in the future.”