Prices of cotton futures rose by 40% by the summer of 2022 but by December they fell 20% lower than the levels at the beginning of 2021. The major upside driver for cotton prices is the reopening of China’s economy as the country is a major importer of cotton. Weaving factories in China consumes more than a third of the global output. Other large consumers are Bangladesh, Vietnam, and Turkey.
The upcoming recession may hamper the demand for cotton as the demand for new clothing mostly drove cotton sales in the first half of 2022. Several Chinese corporations were closed due to pandemic prevention reasons last year and this slashed cotton imports in China by half. Many investors are afraid that China’s isolation could prompt cotton overstocking and falling prices. But the U.S. Food and Drug Administration has forecasted that cotton harvest for 2023 will come to 82.8 million bales, the lowest since the 2018-2019 season. Moreover, the American harvest is expected to drop by 5 million bales to 12.6 bales. This may cause cotton shortage in the United States as the country needs 18 million bales to meet internal demand.
