What’s Driving Cotton’s Pricing ‘Predictability’ Amid Trade Turbulence

Despite recent trade volatility, cotton prices this year have remained reliably flat and relatively low.

In a one-on-one chat with editor-in-chief Peter Sadera at the Sourcing Journal Fall Summit, Cotton Incorporated’s senior economist, corporate strategy and insights Jon Devine pointed out that since January, the per-pound price for cotton has shifted a mere three to four cents. And in contrast to the growing costs tied to tariffs and exchange rates, cotton prices are actually at their lowest point over the past five to six years.

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“Cotton’s here to help,” Devine said. “Prices are lower. Prices are stable, maybe adding a little predictability to your business in this very unpredictable environment.”

Like most goods, cotton pricing is closely tied to supply and demand. Compared to the $1.50 price per pound that was reached amid Covid-era stimulus “euphoria,” cotton costs took a downturn as inflation and worries of a recession introduced “sobriety” and fewer orders. “If cotton prices were already lower, there’s less room for us to fall with some of this tougher news that’s been coming out about tariffs and the trade environment,” said Devine.

Cotton is a global crop. It is the second most internationally traded agricultural product after soybeans, and looking specifically at the U.S., 85 percent of American-grown cotton is exported.

Because of this global trade, U.S. growers’ cotton prices are affected by production and import trends in other growing regions. In the 2023-24 crop year, China imported a decade-long high of 15 million bales, causing scarcity and creating a pricing bump. This was largely tied to the government gathering cotton for its reserves, and this level of demand from cotton’s number one importer has not been seen since.

At the same time, Brazil’s production has roughly doubled over the last 10 years. The U.S.—which is the fourth largest grower of cotton—also has to compete with production regions like West Africa and Australia, contributing to the current lower prices.

U.S. cotton’s focus on exports has also left it exposed to trade turbulence. Offering a potential respite, enacted and proposed policies are aimed at getting more American-made inputs back into U.S.-destined goods. As part of the “Liberation Day” tariff announcement on April 2, a rule was introduced that allows products with at least 20 percent of their value from U.S. content to avoid tariffs on the portion of the good that has an American origin. However, this requires companies to not only meet this threshold but also prove it. Companies could also be incentivized to use U.S. cotton if the proposed Buying American Cotton Act passes. This legislation gives larger tax credits the more the cotton is transformed on U.S. soil. For instance, using American-made cotton yarn would yield a larger credit than fiber.

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To circumvent rising tariffs, onshoring seems like an answer. However, the U.S. manufacturing trend is pointing in the opposite direction as domestic demand and the volume of fiber being spun in the States has been on the decline. There has been an uptick in mill use within Central America, offsetting some of the U.S. reduction and providing another yarn sourcing option in the region.

In some cases, other countries have altered or removed their cotton tariffs in response to rate changes for accessing the U.S. market. For instance, India recently eliminated import duties on U.S.-grown cotton. Devine noted that tariffs on cotton imports are uncommon in textile producing countries since the nations want to support the sector. However, India had import duties in place to protect its domestic cotton growers. The recent abolition of these tariffs comes as the country has shifted from exporting more cotton to importing more fiber.

“The reduction in tariffs in India could be a shift in policy longer term, beyond some of these shorter-term tariff issues, towards India becoming less focused on agriculture or its cotton production, towards being more focused on textile manufacturing and wanting to be competitive in terms of the fiber prices that its textile industry has access to,” said Devine.

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