Cotton prices are likely to fall as production expands

Cotton prices are likely to fall as production expands

Worldwide cotton production is expected to rise by 9% to 127m bales in the 2011-2012 season - and prices are likely to fall from the current record levels - according to the latest forecasts from an inter-governmental group.

The International Cotton Advisory Committee (ICAC) warns, however, that prices are likely to stay substantially higher than the average of 60 cents per pound that prevailed during the past decade.

Higher prices, and competition from chemical fibres, it says, are expected to limit growth in mill use to 25.4m tons during 2011/12, a rise of 3%. The largest increases in mill use are seen in India, China, Pakistan and Turkey.

World cotton prices reached new records during February 2011, driven by limited supplies, robust demand and depreciation of the US dollar.

The Cotlook A Index reached a record of 233.5 cents per pound on 18 February and averaged 147 cents per pound during the first seven months of 2010/11. This compares to an average of 77.5 cents per pound during 2009/10.

The New York futures contract for March 2011 delivery rose from 77 cents per pound on 2 August 2010 to a record of 205 cents per pound on 28 February.

Production is set to rise as farmers respond to higher demand and prices, with cotton planting around the world projected to rise by 7% in 2011/12 to 36m - the largest in 17 years.