World cotton production is constantly shrinking

Extreme weather events wreak havoc on nearly all of the world’s major cotton suppliers.

In India, the top cotton producer, heavy rains and pests have reduced cotton crops so much that the country is importing supplies. A heat wave in China is raising concerns about the upcoming harvest there. In the U.S., the commodity’s biggest exporter, a worsening drought is ravaging farms and is set to push output to the lowest level in more than a decade. And now Brazil, the second-largest exporter, is struggling with extreme heat and drought that have already reduced yields by nearly 30 percent.

This flurry of extreme weather events caused by climate change has sent cotton prices soaring by 30%. Earlier this year, they hit their highest level since 2011, squeezing the profit margins of clothing suppliers around the world and threatening to raise the cost of everything from T-shirts, nappies, paper and cardboard. In a call with investors earlier this week, Children’s Place CEO Jane Elfers described rising cotton prices as “a huge, huge problem for us” and said the company hopes to see some relief in the second half of the year. year.

The outlook for Brazil is anything but helpful. The drought there has already dried up about 200,000 metric tons of supply, according to Abrapa, a group representing growers. With the 2021-2022 harvest almost complete, output now looks set to reach 2.6 million tonnes – or less.

The Bom Futuro group, one of Brazil’s largest cotton producers that accounts for about 10% of the country’s planted area, saw yields drop by 27% compared to the previous season. Julio Cezar Busato, a producer in Sao Desiderio, Bahia state, has suffered a similar decline. The drought is reducing the number of cotton bolls, making them lighter in all major growing regions of the country, he said.

Meanwhile, US production is expected to drop 28% during the season that started this month. The US expects production to hit its lowest level since the 2009-2010 season, sending stocks to near-record lows, due to a drought that has become so extreme that the US government is restricting water from the Colorado River. Together, the US and Brazil account for half of the world’s cotton exports.

The decline in global supplies has become so steep that it is overshadowing demand headwinds. The US government and analysts are predicting a drop in demand due to falling apparel markets and slowing economies, particularly in Europe and Asia. And yet, all signs point to cotton prices being “much higher” in the coming months as crops shrink, said Andy Ryan, senior relationship manager at Hedgepoint Global Markets in Nashville.