2016/17 is seen as the second consecutive season where cotton consumption will exceed production

2016/17 is seen as the second consecutive season where cotton consumption will exceed production

A downward revision to its forecast for global cotton stocks at the end of the current season has prompted the International Cotton Advisory Committee (ICAC) to lift its estimates for average cotton prices to a three-year high.

The new projection comes a month after the inter-governmental body said tighter cotton stocks in the just-started new season would be unlikely to lead to a significant rise in cotton prices.

International cotton prices surged to over 80 cents/lb in the second half of July from an average of 70 cents/lb for the rest of the season. But the ICAC at the time said it expected average world cotton prices in the 2016-17 season – which began on 1 August – to be 72 cents/lb as measured by the Cotlook A index. This would represent a rise of just 2 cents/lb on last season's average price.

However, its latest forecast now points to a further gain of 3 cents a pound to 75 cents a pound in the current year.

The rise comes as the group slashed 490,000 tons from its forecast for global cotton stocks at the close of the season to 18.14m tons.

In its latest update, the ICAC said it estimated world ending stocks fell by 13% to 19.5m tons in 2015/16 as global demand outpaced production.

And it now says 2016/17 will be second consecutive season of consumption exceeding production. Its calculations suggest world cotton consumption will exceed world cotton production by 1.4m tons, which would bring ending stocks to 18.14m tons – down 7% from 2015/16.

However, unlike in 2015/16, when there was an 11% decrease, ending stocks outside of China are forecast to increase by 1% to 8.3m tons, though the stock-to-use ratio will remain unchanged.

However, ending stocks in China are expected to drop 13% to 9.9m tons in 2016/17 as the country's government continues to dispose of its reserves. By the end of August, the Chinese government sold 2m tons from its national reserve, bringing the volume held to just over 9m tons.

Meanwhile, world cotton production is projected to rise 6% to 22.5m tons.

Better prices for competing crops, the late arrival of the monsoon and yield losses from pest pressure last season discouraged farmers in India, the world's largest producer of cotton, and the planted area is projected to fall by 6% to 11.2m hectares. Sufficient rains should boost the national average yield by 8% to 521 kg/ha, and production is forecast to increase by 2% to 5.8m tons.

The area under cotton in China is projected to contract by 7% to 2.9m hectares in 2016/17, but the national average yield is expected to improve by 4% to 1,623 kg/ha due to generally favourable weather during the growing season. China's production is forecast to fall by 3% to 4.7m tons.

The cotton area in the United States is expected to rebound by 10% to 3.6m hectares, and the average yield is seen riseing by 8% to 929 kg/ha due to beneficial weather and plentiful rainfall. As a result, production is forecast to grow by 19% to 3.3m tons.

Losses from poor yields in 2015/16 and weak prices discouraged farmers in Pakistan from planting cotton in 2016/17, and area under cotton is forecast to fall 5% to 2.7m hectares. However, the national average yield is expected to rebound by 27% to 669 kg/ha, and production could increase by 20% to 1.8m tons.

And improved weather this summer encouraged farmers in Francophone Africa to expand cotton plantings by 10% to 2.9m hectares, with the average yield forecast to increase by 4% to 385 kg/ha. As a result, production in Francophone Africa is expected to grow by 14% to 1.1m tons.

World cotton consumption

The ICAC forecasts world cotton consumption will remain stable at 23.8m tons. China will likely be the largest consumer in 2016/17 despite an expected decrease in mill use of 3% to 7.1m tons, which would be the seventh consecutive season of contraction.

India's mill use is expected to remain stable at 5.3m tons due to strong domestic cotton prices and competition from competing fibres. After declining by 9% in 2015/16, cotton mill use in Pakistan could recover by 1% to 2.3m tons due to improved access to uninterrupted energy supplies.

Turkey's consumption is seen remaining stable at 1.45m tons, while Bangladesh's mill use is projected to rise by 12% to 1.2m tons.

World trade volume

Stable demand and larger crops in many of the top exporting countries are expected to lead to an increase in world trade volume of 3% to 7.5m tons.

Imports by Bangladesh are likely to increase 12% to 1.2m tons, making it the world's largest importer. Vietnam's imports are forecast to grow by 12% to 1.1m tons.

After four seasons of contraction, imports by China could increase by 20,000 tons to 980,000 tons in 2016/17 as consumption remains much larger than production.

Exports from the US are anticipated to rise by 27% to 2.5m tons. Meanwhile, stable mill use and a smaller crop are likely to lead to a 32% decrease in Indian exports, which are expected to reach 846,000 tons.