Lui: Cotton Challenges and Prospects in 2024 – Adapting Amidst Economic Slowdown

Yangxuan Liu, Associate Professor, Department of Agricultural and Applied Economics, University of Georgia

Economic Slowdown
Looking ahead, the year 2024 could be another challenging year for cotton producers. According to the International Monetary Fund World Economic Outlook report in October 2023, global recovery remains slow. Global economic growth is expected to slow from 3.5 percent in 2022 to 3.0 percent in 2023 and 2.9 percent in 2024, well below the historical (2000–19) average of 3.8 percent. For the advanced economies, where the highest demand for cotton related products comes from, economic growth is expected to slow even further from 2.6 percent in 2022 to 1.5 percent in 2023 and 1.4 percent in 2024.

Globally, 2023 cotton production is projected at 113.4 million bales, below the world cotton mill use at 115.3 million bales. Uncertainties about the world economy and competition from synthetic fibers are forecasted to limit global cotton mill use growth, according to the U.S. Department of Agriculture. The reduction in economic activity would likely continue to reduce consumer demand for discretionary items, such as textiles and apparel, thus suppressing cotton prices in 2024. The cotton production profit margin would likely be lower, with input costs remaining at a relatively high level.

U.S. Cotton Supply and Demand
In 2023, the U.S. planted 10.1 million acres of upland cotton, the lowest since 2016. U.S. upland cotton production at 12.7 million bales, nearly 1.3 million bales below the 2022/23 crop, and the lowest since 2015. The harvested area in 2023/24 is projected to be 7.9 million acres, higher than last season, but it remains the second lowest over the past decade. The national yield is projected at 776 pounds per acre, noticeably lower than the 2022 crop at 942 pounds per acre.

The U.S. cotton demand estimate for 2023/24 is projected at 14.3 million bales, nearly 0.5 million bales below 2022/23, as the smaller crop limits demand prospects. Due to lower production, U.S. ending stocks are projected at 3.2 million bales in 2023. The U.S. ending stocks-to-use ratio is forecast at 22.5 percent for the 2023/24 marketing year.

Georgia Situation
Georgia planted 1.11 million acres and is projected to harvest 1.1 million acres in 2023, with an estimated 2.35 million bales of cotton produced in 2023. The average cotton yield in Georiga is 1,025 pounds per acre, the highest yield for the past decade and the second highest on record after 2012.

Interest Rate
In response to high inflation, the Federal Reserve increased the federal funds rate to tamp inflation with its largest rate increase since the 1980s. The Federal Reserve’s commitment to bringing inflation back down to its target of 2% resulted in a 5.5% target rate for federal funds by the end of the year in 2023. With the recent upticks in the inflation rate (Figure 3), it remains uncertain when the Fed might begin to cut interest rates. Cotton producers must continue their debt management to cope with the high interest costs in 2024.

Looking Ahead
Many people wonder when cotton prices will surpass the one-dollar mark again. Predicting the future is tricky, and while past trends do not guarantee future outcomes, they offer some insights. Over the last two decades (Figure 1), only two years saw cotton prices go above a dollar: 2011 and 2022. Both these periods were influenced by unique circumstances. In 2011, China’s support programs boosted prices as state-owned enterprises purchased large quantities of cotton to aid Chinese cotton producers. In 2022, high prices resulted from speculative purchases of cotton futures, disruptions in global agriculture supply chains negatively shocked cotton supply within a short period, and severe drought in the Southwest United States and flooding issues in Asia production regions reduced cotton supply. Chances that we would experience these unique circumstances again as in 2011 and 2022, are low. This offers us some expectations about where the cotton prices will be headed in 2024.

As this is being written on December 7, 2023, December futures prices, CTZ24 (Dec ’24), for the 2024 cotton crop are currently around 79.09 cents per pound. The optimistic likely price for cotton in 2024 is 79 to 83 cents per pound or better, and the pessimistic likely price for 2024 is 69 to 73 cents per pound. For planning and budgeting projections, a price of 74 to 78 cents per pound is suggested for 2024. Producers not in a marketing pool are encouraged to develop a marketing plan to protect the harvest price, as it is risky to lock in high input prices without a marketing plan for the crop.

Figure 1. Cotton Cash Prices for the past two decades. Source: barchart.com

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