What about cotton?

Cotton pricesThe geopolitical developments in global supply chains are being re-established at the heart of the agenda due to supply conditions and the growing demand for natural fibers.

Global supply chains As it changes shape in recent years with successive shocks, fluctuations in commodity markets are now creating extraneous effects. It has reached its highest price level since 2024, with a rise in cotton prices exceeding 20% since New Year's.

To elaborate on the relevance of a product growing in the field to tensions in the Middle East; Tensions in the Strait of Hormuz and its geography are deeply shaking global logistics. Thus, disruptions in the supply of nafts used in the production of synthetic fibers, this bottleneck experienced in the byproduct of petrochemicals, the great brands and the eye of the great producers shifted to the white delicate flower cotton of the soil. During this time when demand shifted to natural fibers, the United States, one of the world's largest cotton producers, was plagued by severe drought, raising serious concerns about supply, raised prices.

Cotton Prices and Brazil's Rise in the Global Cotton Market

As demand rose rapidly, supply-squeezing causes in the United States turned the eyes to Brazil, which had an abundant supply of cotton. Brazilian cotton producers, the country that became a net exporter in the 1990s, have now ousted the United States, accounting for 1 in 3 of Global shipments.

For Brazilian farmers preparing for a record export of 3.1 million tons in the upcoming season, this shows how quickly the market will shift. While prices can only sell 1 in 3 of the crop before it goes so high, prices are currently high, but it has already disposed of up to 90% of the crop it will harvest next month.

As a result, what can be said is that the climate stability in favor of Brazil and the resulting Geopolitical tensions made it difficult to access intermediate goods nafta, which was the input of synthetic production, and now Brazil's cotton production and net Exporter position, due to the return of the eyes to the natural cotton. It has also increased its share in the Chinese market, which is the largest cotton importer. In addition, India's lifting of import taxes opens new trade gates to Brazil.

The slightest loss of crop in U.S. cotton production fields encourages production as it will raise cotton prices in the global context and as the price is set in the free market, it will cover the farmer's production costs in Brazil (high fertilizer costs, the burdens of credit use costs, etc.) and even increase profit margin.

How do cotton prices affect Turkey?

As the cards of the global cotton market are being redistributed, how is Turkey, one of the world's largest importers of yarn, fabrics, ready-to-wear, affected by this situation?

In their minds, the following questions arise;

• Isn't Turkey an agricultural country?
• Is there no cotton production in Turkey?
• Is Turkey the net importer in cotton?
• Why does the harvest of the Brazilian on the other side of the world affect us so deeply?

Let us come to the answer to these questions and to the economic implications of these answers,

Cotton production and harvests are being made in Çukurova, Aegean, Southeast Anatolia regions of Turkey, but our cotton harvests cannot afford the volume of textile production, which can be called Turkey's pride painting. TÜIK (Turkish Statistical Institute) According to the data, Turkey produces between 750,000 and 850,000 tons of fiber cotton on average, making us the 6th to 7th place in the world in terms of cotton production rate. Putting it in line.

According to UPK (National Cotton Council) and international USDA reports, the annual cotton needs of the Turkish textile and apparel industry range from 1.5 million tons to 1.7 million tons, so even though we produce cotton, the installed factory capacity demands exactly 2 times that of our own. To prevent the sector from stalling or producing under capacity, Turkey must import between 800,000 tons and 900,000 tons of cotton each year on average. This huge supply-demand gap directly affects the Turkish textile manufacturer, international price fluctuations.

Turkey's No. 1 cotton supplier is the United States, but the U.S. Department of Agriculture's recent Global cotton report also states that the severe drought that undermined U.S. agriculture production, particularly Texas, has reduced both cotton production and raised cotton prices set on the free market. At this very point, Brazilian cotton has become a mandatory commodity for the Turkish textile sector, but also in our production capacity, it has become a saviour for the final production of goods.

Route Change in Supply Chains and Turkey

• It creates exchange-based cost shock; The fact that cotton futures are on the rise in the free market means that the price of raw materials for the producer within the country is on the rise when the cost of imported cotton ratio increases, this is in chaining to the price of yarn and from here to the raw material fabric hence the bill of fabric dyeing operations is embossed.
• The contraction of international competition; According to TIM (Turkey Exporters' Assembly) records, Turkey's textile and apparel sector offers an average export revenue of $30-32 billion per year, i.e. foreign currency return to the country is the largest foreign currency-generating sector in the country immediately after the automotive sector. 60% of our exports negotiate a brutal price only when ordering European-owned textile (Zara, H&M, Mango, etc.) groups to the European Union market. With some, and due to cotton prices in the global market, increasing production costs cannot reflect the Turkish producer price difference to the buyer in Europe. As a result, the sector's profit margin is shrinking, and the ordering process shifts to countries with a lower labour cost, with a lower cost of cheap labor.
• Value added emphasis; Turkey imports $2, 2.5 billion of cotton annually from outside, processing this raw material and turning it into final goods, then selling it to the world as a result of over $30 billion. That is, when imported raw materials are processed by smart industrial policies, they increase their value by more than 10 times.

To a general conclusion, this harvest, which makes the farmer's face in Brazil laugh, is a safe new door for Turkey to supply new raw materials and sustainable supply but also a new cost test that must be overcome due to rising prices.

Blog Post: Ilayda Tosun
Faculty of Political Sciences of Sakarya University, Department of Economics 4. Class Student