Cotton – Procurement Best Practices & Sourcing Strategies

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Cotton Market Global Size:

As per ELINT Market Research’s procurement market study, cotton is the most commonly utilized natural fiber in the textile business nowadays, contributing approximately 25% of all fibers produced globally, from people’s everyday clothes to vital healthcare devices. This fact caused a global supply of  242 Million bales for the cotton market in 2022-23.

Also, reports suggest that ninety percent of the individuals who depend on cotton cultivation reside in developing countries. Hence, cotton-producing businesses vastly invest in shipping, manufacturing, wrapping, and warehouse activities to support the production of cotton and basic processing and meet consumers’ needs. Consequently, the global consumption of cotton accounted for 152 Million bales and the ending stock value was calculated as 90 Million bales in 2022-23.

Additionally, ELINT’s study demonstrated that debilitating downstream demand and anticipations of increased output for the 2023 cotton crop caused the total industry cost structure to pressure. Key factors driving this stress include geopolitical uncertainties and changing consumer choices. Moreover, the good news for the U.S.-based cotton sector is that El Nino weather patterns can enhance cultivation in the nation in the second half of the year since in the year 2022, cotton farmers saw numerous difficulties, such as the longest droughts in recent years, which caused a large number of crops to be abandoned. Hence, there is some hope for US cotton farming due to the El Nino weather practices.

Market Definition:

Farming of cotton occurred in major tropical and subtropical areas due to favorable weather conditions and soil qualities. The worldwide textile and clothing sector depends on farmers to meet their cotton demands. Further, people’s need for cotton is predicted to rise because of the extremely affordable costs of cotton fibers in the international market and the rising export activities of cotton yarn.

Cotton Market Drivers:

1. Increased Availability of Cotton –

Cotton is a versatile fiber that supports most of the regions’ weather conditions and soil characteristics. Thus, it is cultivated in large quality and fulfills consumer needs.

2. Expansion of Textile Industry –

The textile sector is known as the biggest consumer of cotton goods fibers in the global market. Henec, expanding textile sector contributes to the increasing export needs for cotton yarn and textile products.

Cotton Market Challenges:

1. Economic Slowdown –

The worldwide cotton industry experiences challenges due to unfavorable economic conditions which also propel industry players to adjust their business strategies according to market shifts.

2. Shortage in Cotton Production in the U.S. –

The U.S. accounted for the biggest cotton manufacturing country and different factors slow down production rates in this nation including droughts, rainfall, government standards, trading stress, and more.

Cotton Market Opportunities:

1. Compliance with Voluntary Sustainability Standards (VSSs) –

Global cotton procurement intelligence companies that maintain compliance with voluntary sustainability standards experience great prospects in the industry. This standard depicts adherence to environmental safety rules like soil & water preservation.

2. Emergence of Technological Advancements –

The introduction of engineered cultivars, agricultural tools, and water-efficient irrigation approaches are a few examples of modern cotton agriculture exercises that improve the sustainable production of cotton.

Cotton Market Segmentation:

1. End User Sectors of Cotton –

The major segmentation aspect for the cotton industry is diverse end-user industries including woven fabrics, textiles, bed sheets, home interior & furnishings, cottonseed oil, pharmaceutical devices, industrial products, cotton swabs, and more.

2. Geographical Segmentation –

Three countries that emerged as prominent cotton manufacturing economies are the United States which showed $1,856 per MT prices for cotton goods in 2023. Further, India and China accounted for $2,205 per MT and $2,401 per MT costs respectively in the same year.

Regional Analysis of the Cotton Market:

Substantial countries own notable shares in the global cotton market and contribute to cotton manufacturing, consumption, exporting, and importing activities. Thus, the manufacturing nations’ list includes India at 23%, China at 22%, the US at 15%, Brazil at 11%, and Pakistan at 5.5%. Further, major consuming countries include China at 32%, India at 21%, Pakistan at 9%, Bangladesh at 7%, and Turkey at 6%.

Moreover, providers that constantly manufacture and supply cotton products to the world include the US at 34%, India at 13%, Brazil at 17%, and Australia at 9%. Additionally, a few regions that are not capable of producing large quantities of cotton and depend on other nations to import cotton goods include Bangladesh at 18%, Vietnam at 16%, China at 22.5%, Turkey at 11%, Indonesia at 5.5%, and Pakistan at 10.7%.

Furthermore, this procurement report predicted that in 2022-23, some key cotton manufacturing regions experienced unfavorable weather conditions including China, India, and the U.S. Therefore, cotton cultivation rates have decreased in these provinces and affected the global supply chain dynamics

Engagement Models and Benchmark Price Indices in the Cotton Market:

The influential benchmark price index of the global cotton procurement intelligence market is known as Cotlook an Index that accounts for 2,011 $/MT and helps industry participants to easily streamline cotton trading movements. Future, engagement models of the cotton industry help buyers and sellers to make alliances for some timeframe and fulfill their needs. Thus, a 3-5 months long contract is the most preferable agreement that stays for short-medium spans. Additionally, the report declared the second quarter of 2023 as the best price lock month for conducting cotton trading activities in the international market.

Cost Drivers in the Cotton Market:

Effective cost drivers of the global cotton industry that occurred in 2022-23 include high energy and fertilizer prices, suppressed international demand levels, adverse weather situations in key cotton-producing regions that impacted cotton yields, and lower production rates. These factors have the capability to influence the international cotton market’s financial statistics.

Key Suppliers in the Cotton Market:

The important participants in the global cotton market are Louis Dreyfus Company, Cargill Inc., Gujarat Cotton Corporation, and SLC Agrícola.