There is an adage: “Be careful for what you wish; you may get it.”
The world cotton industry is experiencing price stability rarely seen, and while some segments may appreciate the tranquility, the industry as a whole will suffer. This may seem counter intuitive as most government officials and many market participants decry price volatility. However, the current stability in prices is not the result of a natural balance between cotton supply and demand. Rather, the current situation results from management of reserve stocks by the governments of China and India.
Those who wished for stable prices have them now. For many, stable cotton prices will make management decisions much easier. There will be no need to hedge sales or purchases. Farmers will plant, ginners will buy, merchants will market, and spinners will sell, each knowing with greater certainty what their returns will be. However, a market situation that seems to be an advantage for individual participants will prove to be a disadvantage for the industry as a whole. Nevertheless, whether desirable or not, stable prices are likely to characterize the cotton market for several years to come.