After hitting record highs of $1.392 per pound just three years ago, the bottom has again dropped out of the highly volatile cotton market. Cotton futures have fallen sharply in recent weeks as investors fret about growing international stockpiles and slashed importation by China. In August, imports by the world’s largest consumer and importer of cotton were down 26% from a year earlier, according to customs data.

In a press briefing in late September, an official with a Chinese state planning committee announced that Beijing would reduce its import quota to 4.1 million bales in 2015, the minimum amount set by the World Trade Organization. The country is currently winding down a massive stockpiling program and looking to spur domestic production.

Cotton futures were already down as the U.S. harvest is expected to be large, adding to record surpluses in warehouses around the world. Edgard Cabanillas, president of commodities-consulting firm Alpine Trading LLC, predicts the burdensome supply could force prices as low as 40 cents a pound. Some cotton traders worry the steep drop in prices could lead to defaults.

Signs of an end to the drought in top-producing Texas have added to bearish fundamentals for the current cotton market. The U.S. Department of Agriculture estimates that 2014 domestic cotton production will increase more than 25% over 2013 production, a result of low grain prices that encouraged farmers to switch to growing cotton.

Apply for a Lubbock Ag Loan Today

As one of the top providers of agricultural loans in Lubbock, City Bank is here to support individual agricultural needs over the long term. We welcome the opportunity to customize a financing package to fit your operation, with a variety of funding options and innovative use of government programs available.