World cotton production in 2007/08 is estimated 2.6 percent lower than in 2006/07, at 119 million bales. Consumption is estimated 1 percent higher than 2006/07, at 124 million bales. Unaccounted cotton in 2007/08 is also estimated higher than in 2006/07. Combining production and unaccounted cotton gives a total estimated supply of new cotton of 122 million bales, down 1.5 percent from the year before.

Ending stocks are expected to fall about 2 million bales in 2007/08, to 59 million bales, or to 48 percent of consumption. This is down from 50 percent in 2006/07, and below the 53 percent average of the previous 10 years. If China’s stocks are excluded from this calculation, ending stocks are forecast at 34 percent of consumption, unchanged from 2006/07, and slightly higher than the 33 percent average of the previous 10 years.

Cotton Prices Remain Low Versus a Wide Range of Commodities:
After a long period of relative stability, cotton prices have become more volatile. Cotton price volatility is in part a reflection of volatility in markets for other goods, and of the uncertainties of today’s economy. Ultimately, only relative prices have economic significance, but changing technology, tastes, and other factors can make predicting relative prices difficult.

An examination of long term trends in the ratio of cotton prices to the prices of other products reveals that cotton prices have fallen significantly since the 1990s. Furthermore, while cottonprices have risen in 2008, they are little changed relative to most other commodities from the year before. Even the surge of the A-Index to 89 cents/pound on March 6th did little to alter this relative price weakness.
An important exception in this respect is synthetic fibers. Polyester prices have not exhibited the strength recently apparent in markets for agricultural commodities, metals, and petroleum. This divergence between synthetic fiber prices and other commodities is a recent development with important implications for cotton.

Cotton prices (A-Index, NE), lost about 40 percent of their value relative to the U.S. consumer price index (CPI) between the 1990s and 2000-05. Falling prices in real terms has long been the norm for unprocessed commodities, but cotton stands out. Between the 1990s and 2000-05, cotton prices declined about 20 percent relative to a large number of agricultural and non agricultural products.

In addition to wheat, corn, and soybeans, cotton prices fell 20 to 25 percent relative to spot prices for copper, gold, coal, bananas, and apparel. In other words, while all these products had prices that fell in inflation-adjusted terms, cotton prices fell twice as much in most cases. On the other hand, cotton prices fell only 15 percent relative to the prices of synthetic fibers, and fell by more than half relative to petroleum prices.

This pattern continued after 2005, and by 2007 the A-Index had fallen more than 40 percent in 20 years with respect to wheat, corn, and soybeans. In 2007, cotton prices were 60 percent lower relative to the U.S. CPI, 70 percent lower relative to petroleum than they were during the 1980s, and about 25 percent lower with respect to rice and synthetic fibers. The first 2 months of 2008 saw cotton again weaken compared with a number of commodities, including wheat, corn, soybeans, gold, rice, and petroleum.