Nearly all of the biggest cotton suppliers in the world are suffering from extreme weather. Heavy rains and pests have severely damaged the cotton crops in India, the world's top producer, forcing the country to import supplies. There are worries about the upcoming harvest in China due to a heat wave.
A deteriorating drought is destroying farms in the US, the commodity's largest exporter, and is expected to cause production to fall to its lowest point in more than ten years. The second-largest exporter, Brazil, is currently struggling with extreme heat and drought, which have already reduced yields by almost 30%.
Climate change-related extreme weather events have combined to drive up cotton prices by as much as 30%. They reached their highest level since 2011 earlier this year, putting pressure on global clothing suppliers' profit margins and posing a threat to drive up the price of everything from t-shirts to diapers to paper and cardboard. Children's Place CEO Jane Elfers called investors earlier this week and said the company was hoping for some relief in the second half of the year, calling the rise in cotton prices "a huge, huge problem for us."
Brazil's future is anything but bright. According to Abrapa, a growers' organization, the drought there has already dried up an estimated 200,000 metric tonnes of supply. The nation's harvest for 2021–2022 is almost finished, and production is currently estimated at 2.6 million tons—or less.
One of Brazil's largest cotton producers, Bom Futuro group, which accounts for about 10% of the country's planted area, has seen yields drop 27% from the previous season. A similar decline has affected Julio Cezar Busato, a grower in Sao Desiderio, Bahia state. According to him, dryness is making cotton bolls lighter and fewer across all of the major growing regions of the nation.
Meanwhile, the season that started this month is expected to see a 28% decline in US output. Due to a drought that has become so severe that the US government is rationing water from the Colorado River, the US anticipates production to drop to its lowest level since the 2009–2010 season, sending stockpiles to almost historic lows.
The United States and Brazil export half of the world's cotton. Headwinds in demand are being overshadowed by the sharp decline in global supplies. A decline in demand is anticipated by the US government and analysts as a result of a decline in clothing sales and weakening economies, particularly in Europe and Asia. Nevertheless, with crops declining, all indications point to "much higher" cotton prices in the upcoming months, according to Andy Ryan, senior relationship manager for Hedgepoint Global Markets in Nashville.
A Financial Mountain Busato, who is also the head of Abrapa, sold 75% of the crop he anticipated to harvest in advance and largely missed the significant price increase. He only produced enough due to the weather to fulfil his pre-existing contractual obligations. He said, "I could have made a mountain of money."
The world's cotton buyers now have an additional problem due to the weather. According to Peter Egli, director for Plexus Cotton Ltd., untimely rains have also decreased the quality of the stock in places like Australia, Pakistan, and even Brazil.
Brazilian farmers plan to increase their cotton-growing areas by 100,000 hectares to 1.7 million hectares for the 2022-2023 season, with planting to start in January, so as to avoid being caught off guard for another season. Farmers there are looking to start hedging the 2023 harvest more aggressively now that the majority of the current crop has been sold. Busato stated, "We don't want to lose Asian markets that we recently gained.
