Expected global cotton supply growth weighs on prices for Australian producers

The global supply outlook is expected to increase year-on-year, largely at the hands of production growth in Brazil and the US. The improving global supply picture is weighing on ICE #2 Cotton futures, in addition to Australian cash markets. The market expectation is that world stocks will rise next season, as demand growth is unlikely to fully absorb the additional global supplies. Speculators are playing a role in the current bearish market dynamics, given the large net short position they are holding on ICE #2 Cotton futures. However, the potential for weather-related issues to arise (especially in Texas and the Delta) mean that short covering is possible.