The cotton market recently set new lows as futures prices dropped below 38 cents per pound- the lowest level since 1986. One only wonders where the bottom is. I don't think anyone knows for certain. We can only hope and assume that the market already has factored in all the bad news and that eventually prices will head in the other direction. The market is a mixed bag right now. Demand news has been somewhat encouraging lately but, honestly, there is potentially so much cotton that the supply side has just completely dominated the picture.

USDA's August report pegged the US crop at 20 million bales, the World crop at 96 million, and ending stocks at 41.5 million bales. These are huge numbers but there continues to be some uncertainty about the US and China crops.

Although the US textile mill industry has declined, foreign mills are working at such a pace that total world cotton use continues to increase and trend upward. This is good and US exports are generally doing pretty well. Also, the value of the dollar has weakened over the past month and the steady decline in the A-Index (world price) has improved Step 2 values. Both these factors bode well for US exports and US mills.

Under even the most optimistic of outlook scenarios, it seems it will be difficult for cotton prices to mount much of a charge. A significant supply shock will be needed. Prices seem "trapped" between 38 and 44 cents right now. If and when we approach the 50-cent area, prices will likely meet some stiff resistance.

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