Balancing economic forces at home and abroad could reduce the ongoing tug-of-war faced by the U.S. cotton market and offer pricing opportunities for growers, according to farm economist Gary Adams.

Adams, the National Cotton Council’s vice-president of economics and policy analysis, says among the issues facing the U.S. cotton market include the ongoing competition on the demand side from cotton’s rival polyester, and on the supply side from strong prices for grain and oilseeds.

These prices tracked together during the first half of the 2000 decade. Then corn prices skyrocketed in the latter half of the decade as corn ethanol production expanded. Cotton prices ultimately competed with corn in 2011 at record-setting prices which made U.S. cotton uncompetitive on the demand side.

“Today, I think the U.S. cotton market is searching for balance,” Adams told the packed crowd at the 2012 joint meeting of the Arizona Cotton Growers Association and the Arizona Cotton Ginners Association in Carefree, Ariz.

Adams says more downside pressure currently exists for the U.S. cotton market than upside pressure.

“I think the upside potential is limited based on current world cotton stocks,” Adams said. “The downside finds some support since polyester prices are holding in the mid 70-cents-per-pound range. Recent dips in cotton prices have generated some interest in cotton demand.”

According to the latest USDA estimates, world cotton stocks achieved the 67 million bale mark during the 2011-2012 marketing year; up from about 50 million bales in the 2010-2011 marketing year.

Also on the U.S. cotton market’s radar screen are new policies implemented by the governments of China and India — countries which typically rank first or second in mill use and trade.

Historically, China is the world’s largest cotton producer. From 2006 to 2008, Chinese cotton production averaged about 36 million bales each year. India claimed the second spot during the same time period with 23.1 million bales. The U.S. was third with 17.9 million bales.

Beginning with its 2011 crop, China gained the attention of the world cotton industry when it implemented an explicit support program. The move was designed to rebuild government-held cotton stocks by purchasing fiber cotton from the world market at about $1.40 per pound range based on current exchange rates.

The price has been 20 cents to 50 cents or more above world cotton prices; a financially lucrative decision for China’s cotton producers.

“Over the short term, China’s action is one reason why U.S. cotton prices held firm during that time period,” Adams explained. “However there are many concerns about the negative impact on the market when China decides to release cotton from the reserves.”

China purchased about 14 million bales for its reserves from October 2011 to March 2012; about one-third of China’s annual mill use. China’s price support program is likely to continue for the 2012 crop.

India, the world’s second-largest cotton exporter after the U.S., has an erratic reputation for the implementation of new government cotton programs and then retracts the programs shortly thereafter, Adams says. In recent years, the Indian government imposed export restrictions in response to a tighter domestic cotton market.

Earlier this spring, India halted most cotton exports, but was expected to honor previous export commitments. Subsequently, India relaxed the export limits and is now back selling in the world market. Additional limited export shipments will likely continue into the fall months or beyond.

Adams said, “It is a bit unsettling to realize that the direction of the U.S. cotton market hinges on government decisions in China and India.”