Cotton prices in 2016-17 are seen edging up to 72 cents a pound

Cotton prices in 2016-17 are seen edging up to 72 cents a pound

A fall in world cotton stocks at the end of the current season as mill use exceeds production has seen forecasts for global cotton prices in 2016/17 edge up slightly.

According to the latest projections from the International Cotton Advisory Committee (ICAC), global cotton prices in 2016-17, as measured by the Cotlook A Index, are up 2 cents a pound, to 72 cents a pound. This compares to an average price of 70 cents a pound the year before – and the 64.99 cents a pound for December cotton futures.

The inter-governmental group says world stocks at the end of 2016/17 are likely to fall by 5% to 20.4m tons as mill use exceeds production by 930,000 tons.

Its forecasts come after world cotton production in 2015/16 dropped by 17% to 21.7m tons as world cotton planting area shrank and many countries experienced below-average yield. This was the lowest volume for 12 years.

While planting area is expected to contract by a further 1% to 31m hectares in the year ahead, the average yield is likely to improve by 5% to 735 kg/ha, which would cause production to increase by 5% to 23m tons.

Cotton area in India is expected to expand by 1% to 12m hectares, and production to increase by 8% to 6.3m tons. Better monsoon weather may boost yield by 6% to 521 kg/ha, though pest pressure remains a concern.

Cotton area in China is seen declining by 10% to 3.1m hectares due to high production costs and reduced government support, and production is forecast to fall by 10% to 4.7m tons.

After contracting by 14% to 3.3m hectares in 2015/16 due to less attractive cotton prices and overly wet soil conditions preventing planting in some areas, cotton area in the United States is expected to expand by 5% to 3.4m hectares, and production could increase by 14% to 3.2m tons.

In Pakistan, measures are being taken to help combat the pink bollworm pest, and yield is expected to partially recover by 25% to 662 kg/ha in 2016/17. Nevertheless, cotton area is likely to contract by 5% to 2.7m hectares as farmers switch to competing crops with better returns, and production is projected to increase by 19% to 1.8m tons.

In terms of global consumption, this is forecast to remain at 23.6m tons in 2016/17 as low prices for competing fibres such as polyester make cotton less attractive.

Consumption in China is expected to decline by 5% to 6.8m tons. However, mill use is likely to grow by 11% to 1.2m tons in Vietnam and by 10% to 1.2m tons in Bangladesh.

Despite declining demand for imports of cotton yarn by China in 2015/16, mill use in India is expected to recover by 3% to 5.4m tons and in Pakistan by 1% to 2.2m tons.

While mill use is seen remaining stagnant in 2016/17, world cotton trade volume may increase by 1% to 7.4m tons, the ICAC says.

China's imports are expected to drop 8% to 947,000 tons as the Chinese government continues to restrict imports in order to reduce its sizeable stocks of cotton.

However, imports outside of China are forecast to increase by 3% to 6.5m tons. Given the larger exportable surplus available in the US, exports may increase by 18% to 2.3m tons in 2016/17.