ICAC has cut its cotton price forecast for 2014/15

ICAC has cut its cotton price forecast for 2014/15

The International Cotton Advisory Committed has lowered its forecast for world cotton prices due to surplus cotton production and changes in China's cotton policy.

At the end of 2013/14, international cotton prices were around US$0.80/lb and have continued falling in the first two months of the new season, the ICAC noted. Given the predicted 1.8m tonnes of surplus cotton production and changes in China's cotton policy, prices are unlikely to rise to the levels seen in the last two seasons, it said.

The group has therefore cut its cotton price forecast for 2014/15 for a second consecutive month, by $0.05 to $0.75 per pound, taking the estimate below the 2009/10 result of $0.78 per pound.

With the fall in prices, world cotton consumption is forecast to rise nearly 4% to 24.4m tonnes, with the majority of consumption occurring in the latter half of the season as the market becomes more certain about the size of the new crop and can better determine an appropriate price for cotton.

The ICAC believes that while cotton's absolute volume of consumption is likely to grow, it will probably not gain back much of its market share as it takes time for the market to adjust.

"While China imported much of the surplus production in the last three seasons, this season it has announced that it will not provide additional quota in 2015, beyond the required 894,000 tonnes, as it has in recent seasons," the ICAC said.

"The restriction on imports next season was likely implemented to help reduce the large government-held cotton stocks given that China's consumption is expected to exceed production by around 1.5m tonnes."

Though some mills still hold additional quota for 2014, China's imports are forecast to fall 36% to 2m tonnes, and world imports to decline 11% to 8m tonnes. Imports by the rest of the world, notably Southeast Asia, are projected to increase 2% to 6m tonnes.

The ICAC lifted its estimate for Indian output by 300,000 tonnes to 6.6m tonnes, due to sowings in the country having risen by 5%, "as the delayed monsoon encouraged farmers to switch to cotton". This will make India the world's largest cotton producer in 2014/15.

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