World cotton prices seen low for another season

WORLD: Cotton prices seen low for another season

By Leonie Barrie | 8 June 2012

Forecasts for a second consecutive season of higher global cotton stocks are likely to keep international prices low for another year, according to the latest report from an inter-governmental group.

The International Cotton Advisory Council (ICAC) expects stocks to jump by 43% to 13.3m tons in the 2011/12 season - which runs until 31 July. And it sees this growing by another 9% in 2012/13 to 14.5m tons.

By the end of July 2013, global cotton stocks are likely to represent 61% of global consumption, the group says - making this the highest stocks-to-use ratio (a measure of supply) reached since 1998/99.

It also noted that other factors weakening prices include the arrival of rains in Texas, the top US cotton-producing state, new uncertainties regarding the EU economy and the resulting strengthening of the US dollar.

That said, there is also a risk that price volatility may increase next season due to uncertainties over how the Chinese government handles the national reserve.

ICAC forecasts predict world cotton production will fall by 7% in 2012/13 to 25.1m tons after cotton prices plunged the year before.

Global cotton mill use is projected to rise by 3% to 23.9m tons in 2012/13, driven by improving economic growth and lower cotton prices. Global trade is expected to decline by 8% to 8.1m tons.

The committee also suggests Chinese imports could fall from a record of 4.6m tons to 3.3m tons, whereas imports by the rest of the world could increase by 15% to 4.8m tons, boosted by lower cotton prices and increased consumption.

In the 2011/12 season, three-quarters of the projected increase in global stocks has taken place in China, as the country continues to build its national cotton stockpiles.

However, a portion of this reserve might be auctioned before the arrival of the new crop, to rotate stocks the ICAC says.

"The Chinese government already announced a slightly higher minimum support price for 2012/13 and is expected to buy part of the new cotton crop. This suggests that the size of the Chinese national cotton reserve may increase further in 2012/13."

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