Understanding the Factors That Determine Cotton Prices

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Have you ever wondered exactly what types of factors influence the prices of American cotton? Cotton farmers pay close attention to these prices, but don’t always have a clear sense of exactly what causes their regular fluctuations.

From a cotton harvester parts company, here are a few of the biggest factors that play a role in determining the price of cotton on a national and international scale:

  • Production totals: As the amount of cotton being produced rises and falls, so too do the prices for the crop. This is simple supply and demand in action—the more in demand the product is, the more expensive it will become. Some years have better outputs than others due to a variety of factors, including weather, bug infestations and plant diseases. Recent years have seen lower outputs than historical levels, which has led to increases in general crop prices.
  • Economic growth: The worse off an economy is, the less likely consumers are going to be to want to spend money on cotton-based items like jeans, shirts and bedsheets. However, as the economy continues to grow, so too do people’s expendable incomes and the amount of money they’re willing to spend on these items. Therefore, the stronger the economy, the higher the prices for cotton become.
  • Oil prices: It might be confusing at first to consider that oil prices and cotton prices could be at all linked. However, consider this: cotton has the single largest per-acre energy cost out of all farmed items, which means changes in oil price also directly affect changes of cotton prices. The more expensive oil becomes, the more expensive cotton becomes as well, because increased oil prices mean increased costs of harvesting that cotton, not to mention shipping it around the globe.
  • Seasonal changes: The price of cotton can vary depending on the time of year. The prices usually hit their peak in February and March every year, and tend to bottom out around August. This has to do with the harvest cycles and the times of year at which there is the most demand for cotton goods.
  • International factors: Overseas demand for cotton can also influence the prices here in the United States. China, for example, had been stockpiling cotton for years, which led to artificially inflated prices. When China stopped its stockpiling program, these prices began to come back down to earth.
  • Government policies: Many countries that produce cotton try to shield their farmers and the textile industries from outside competition, but when these policies change there can be a big impact on other cotton producers around the world.
  • Weather: Changes in climate and weather patterns can have an effect on cotton prices, especially when there are droughts. Cotton depends on fertile soil, up to four feet of water each year, plenty of sunshine and no frost, and a lack of any of these factors could result in major cotton production problems and resulting price changes.

These are just a few of the factors that affect cotton prices nationally and internationally. To speak with an expert at a cotton harvester parts company, contact Certi-Pik, USA today.