Cotton is a basic crop that is a major input for the textile, agriculture, and food industries. 64 percent of cotton is used for apparel, 28 percent for home furnishings, and 8 percent for industrial products. In the US, $120 billion of business revenue is stimulated by cotton.
The U.S. is a major cotton producer, but its domestic textile industry is relatively small, so it exports much of the cotton it produces. In 2007, 97 percent of US net domestic consumption of cotton was from imports, even though an estimated 27 percent of those cotton goods contained US cotton.
Overall, China is the largest producer and consumer of cotton, accounting for 29 percent of the world's production and 43 percent of the world's use of milled cotton in 2007. China manufactures apparel and other textile products from the milled cotton, often for export. Demand in this and other emerging markets is a leading driver of cotton prices, as are seasonal growing conditions and the prices of competing crops. Higher corn and soybean prices due to the production of biofuels makes those crops more attractive to growers, displacing cotton production and driving up prices. In 2008, US cotton acres are down 30 percent, to 11 million from 15 million in 2007. Demand for cottonseed, a significant byproduct of cotton production used in the food industry and for animal feed, also influences cotton prices.
Cotton #2 is traded on the New York Board of Trade under ticker symbol CT. Futures contracts are delivered in March, May, July, October, and December of every year. (For more information on commodity tickers, check out the commodity ticker construction page.)
Cotton prices have spiked significantly over the last 2 years, from 59.56 cents/pound in 2006 to a peak of 81.54 cents/pound in March of 2008. The International Cotton Advisory Committee forecasted a season-average Cotlook A index of 79 cents per pound for 2008/09, which represents a 6 cent increase over the 2007/08 average. The price increase is due to a slight expected decline in worldwide production from 26.2 to 25.9 million tons due to competition from soybeans and grains.
Global consumption is on track to exceed production in 2008/09, which would leave the world cotton stocks down by 6% to 11.3 million tons. Imports to the rapidly developing mainland China have steadily increased and is expected to drive a 5% increase in global imports in 2008/09, while imports by the rest of the world decrease.