Cotton price has moved sideways since November 2022 as investors assess the supply and demand dynamics. It was trading at $88 on Monday, where it has been in the past few months. This price is a few points above the year-to-date low of $76.

Cotton demand and supply dynamics

Cotton is an important commodity that is used to manufacture of clothes and garments. Its demand has been growing in the past few decades, helped by the soaring world population. Data shows that the world has over 8 billion people, up from over 6.1 billion in 2000.

Cotton prices surged hard during the Covid-19 pandemic, helped by the commodity supercycle. It jumped from a low of $48.08 in 2020 to a high of $149.98 on May 2nd of 2022. Since then, cotton has plunged by more than 43% from its highest point in 2022.

The biggest cotton producers in the world are China, India, the United States, Brazil, Pakistan, and Australia among others. On the other hand, China is the biggest cotton producer in the world. Other top cotton consumers are India, Pakistan, Bangladesh, and Vietnam among others.

According to OECD, global cotton production is expected to continue growing in the coming years. India’s production is expected to grow by 1.3% p.a in the next decade. In Brazil, where cotton is planted as a second crop in rotation with corn and soybeans, is also expected to see strong growth.

The most recent WASDE report showed that the US will show higher production, helped by favorable weather conditions in the Southwest. Exports are expected to grow by 500k bales to over 14 million bales. Globally, world production will grow by 1 million bales because of higher supplies in the US and lower production in China.

Cotton price forecast

(Click on image to enlarge)

Cotton chart by TradingView

The daily chart shows that cotton price has been moving sideways in the past few months. The price has remained between the important support level at $76.20 and the resistance point at $88.62. As a result, the price is hovering at the 25-day and 50-day moving averages.

Most importantly, the Average True Range (ATR) has dropped to a low of 1.71, the lowest level since September 2021. The ATR is an important figure since it is the most popular measure of volatility in the market.

Therefore, cotton prices will likely continue consolidating in the coming days. A bullish breakout will be confirmed if it moves above the key resistance level at $88.62. A move below the support at $80 will invalidate the bullish view.

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