Cotton prices are set to average 88 cents per pound in the 2013/14 season

Cotton prices are set to average 88 cents per pound in the 2013/14 season

International cotton prices for the current season are set to come in much lower than earlier forecasts had suggested, due to ongoing changes in the global situation.

In April this year, the International Cotton Advisory Committee (ICAC) projected that prices for 2013/14 would be 118 cents per pound. But it now says the current midpoint of the forecast range is 88 cents per pound.

A combination of factors is at play, including better harvests in several major producing countries, and world production outpacing consumption during the season.

China's reserve and import policies also weigh heavily on international prices.

So far in 2013/14, the China National Cotton Reserves Corporation (CNCRC) has bought more than 2.7m tons, and its total cotton reserves have passed 10.1m tons.

CNCRC began offloading some of stocks at the end of last month, selling cotton at CNY18,000 per ton or 133 cents/lb using current exchange rates, for standard grade starting with its 2011 reserves.

Although there is no planned volume of sales from the reserves, the ICAC secretariat is assuming that CNCRC will sell roughly 2-3m tons so that China's ending stock for the season will be around 11-12m tons.

China's import policy over the past two seasons has seen the country buy much of the world's surplus stock, allowing prices to remain relatively high. However, this season its imports are expected to drop 40% from last season to 3.1m tons.

The sales price of cotton from China's reserve is significantly higher than the import price with a 40% tariff.

Thus, unless international prices rise above the mid-90s and imports would be lower than expected, China's imports are projected to remain around 3.1m tons for the season.

As was the case for the last three seasons, 2013/14 world production is expected to outpace world consumption, with production projected at 25.6m tons, down by 1.2m tons from last season.

World cotton consumption is forecast at 23.8m tons in 2013/14, up 2% from last season with an upward revision of 85,000 tons in India from last month.