Cotton, contrary to the majority of agricultural commodities, has welcomed price improvements in markets in recent months.
Prices have been able to climb above the levels they had been trading at, relatively rangebound, throughout the first half of 2023.
So, with global retail demand - and, with it, demand for natural fibre - remaining relatively subdued, why have cotton prices been climbing while wool prices, for example, have not?
Supply factors have been key driver of cotton's recent price increases. Demand, however, has not played a role in assisting any further price upside and, if anything, has restricted prices from climbing higher.
Now, Intercontinental Exchange number two cotton prices look to have found a new higher level at the US85 cents a pound mark after trading rangebound around US80c/lb for the majority of H1 2023, with all eyes on US cotton production estimates.
The US Department of Agriculture's August World Agriculture Supply and Demand Estimates report US cotton crop production forecasts were cut by 2.5 million bales to just under 14 million bales amidst persisting poor conditions across the cotton belt.
Current crop progress in Texas indicates 34 per cent of cotton bolls have opened (as at August 28) and the portion of the crop in poor to very poor condition continues to climb.
At the start of August, 55pc of the Texan cotton crop was in a poor/very poor condition, however, off the back of dry conditions, this had increased to 67pc by the end of the month.
Last season, the US recorded a cotton production fall due to drought throughout Texas which led to significant crop abandonment.
Fast forward to 2023, and we are seeing a similar sequence of events.
Given US cotton plantings were down 18pc this year and abandonment levels may push higher than last year, the focus will now be on how low production may fall as we get closer to picking in October.
In recent months, the US has been the major contributor to lower global cotton production estimates for 2023/24, with current estimates of 114.1 million bales.
Equating to a 3.5pc reduction on last year, this is supporting prices despite demand continuing to remain subdued within key markets, primarily China.
China's economic growth prospects remain on shaky ground with its ailing property market and contracting manufacturing sector weakening the outlook for improving cotton demand.
Chinese cotton imports are expected to climb to 10 million bales in 2023/24, however this is more to accommodate production losses from this year rather than purely demand-driven growth.
Meanwhile retail sales across key global markets remain weaker than expected as high interest rates tighten consumer spending.
Is there a shining light at the end of the tunnel for demand to bounce back in 2024?
Current signs of opportunity are coming from South-East Asia, India and Pakistan.
Domestic consumption across these regions is expected to increase and push back towards pre-COVID-19 levels.
Bangladesh, for example, is catching up to China as the world's largest cotton apparel exporter, with a positive growth forecast.
Australia is well positioned to build this existing export market.
Given Australian exports are now centred around key South-East Asian countries, alongside India, these are promising signs if demand can in fact reach these expected levels of growth.
