Every year, the supply and demand of U.S. cotton is at the forefront of marketing decisions. Over 80% of cotton grown in the U.S. is exported. The size and need for the crop are major factors influencing price levels. As a result, demand from cotton-importing countries is becoming an increasingly critical topic. Although demand for U.S. cotton has rebounded since the COVID-19 pandemic, it remains below the level needed to match global production. This raises the question: What has caused such a decline in cotton demand?
One primary factor has been the worldwide surplus of cotton. Ideally, cotton consumption should equal or exceed annual production; however, this balance has been disrupted in recent years. While consumption recovered slightly during the 2020 and 2021 crop seasons, subsequent years have seen production consistently outpace demand. The current year is projected to continue this trend, with another surplus of cotton and insufficient outlets for its sale.
U.S. cotton, in particular, faces significant pressure. There is more competition throughout the globe than ever before. Over the past two years, the size of the U.S. crop has fallen below the 20-year average of 17 million bales. When this article was written, the 2024/25 crop forecast was slightly more optimistic at 14.19 million bales but still below average. Accounting for import needs, consumption expectations, and supply, the U.S. could have a 1.74 million-bale surplus by the end of the marketing year.
The remarkable increase in Brazilian cotton production over the last decade is a major contributor to this surplus. Brazilian production has surged 180% in the past 20 years and over 30% in the last five. In two decades, exports have increased by over 500% and 40% in five years. The U.S. continuously faces volatility due to price competition and erratic weather, while Brazil benefits from more stable weather conditions, allowing for more consistent crops. Additionally, the cost of production is lower in Brazil. The breakeven price averages in the mid-to-upper-60 cents per pound, while the U.S. breakeven price is in the low to mid-80s.
China is the largest cotton-consuming country, but since COVID- 19, demand growth has been sluggish. This year, the country is expected to produce 28.2 million bales and consume 38 million. China typically imports just under 10 million bales annually. They imported the largest amount of cotton last year since the 2012 season, requiring both U.S. and Brazilian cotton. However, the current year’s forecast of 9 million bales is disappointing for exporters. China typically issues import quotas, but this year’s allocation of approximately 250,000 bales was a letdown for the market. To add to the disappointment, the quota was issued as a processing quota, which means whatever is imported must be re-exported after it has been processed. China has been noticeably absent from the weekly Export Sales Report this season. U.S. cotton faces more competition from a production standpoint and must persistently battle synthetic fibers. Over the years, cotton has gradually lost market share to man-made fibers, with price volatility significantly influencing the choice between cotton and synthetic production. According to the Textile Exchange, in 2022, cotton’s market share was 22% of global fiber production, whereas synthetic fibers comprised 65%. The ongoing competition with synthetic materials continues to pose a significant hurdle for the cotton industry. 
Global economic pressures have exacerbated the challenges. Inflation has started to slow, and the labor market has weakened, allowing the Federal Reserve to cut short-term interest rates in the United States to a target range of 4.5 to 4.75%. Despite this, demand for cotton products remains weak. Higher interest rates have strengthened the U.S. dollar, making U.S. cotton even more expensive for importing countries. At the same time, currencies in competing countries, such as Brazil, have depreciated. Despite resilient U.S. consumer spending, apparel prices remain above pre-COVID levels, while clothing sales fluctuate.
The market has received some support through significant downward revisions to the U.S. crop estimate. The Pakistan crop, now expected to be 5.5 million bales, is also far lower than initial expectations of 7 million bales. There could be an uptick in inquiries from the country, but the consumption estimate needs to be monitored. Domestic use for Pakistan was revised down to 9.5 million bales. India issued several increases to the minimum support price (MSP), which guarantees a price the government will pay the farmer directly for their crop. This incentivizes mills to look elsewhere for reasonably priced cotton. The Indian
government does not hold onto the cotton purchased for long, and the cotton will eventually re-enter the supply chain.
Sluggish demand and an oversupply of cotton have recently hindered the U.S. cotton market. The short-term outlook remains challenging as the industry learns to adapt to these issues and set itself up for success in the future. The landscape of the U.S. cotton industry is changing, but if cotton gains back a fraction of its market share, demand will exceed production.
