High Cotton Prices Persist Despite Rising Global Stocks

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Demand for cotton around the world is expected to continue to exceed supply, buffering prices above recent averages and indicating they will stay somewhat inflated.

World cotton production is estimated at 22.9 million tons for the 2016-17 crop year, while world mill use is projected at 24.3 million tons, which represents the second consecutive season where mill use has exceeded production.

As a result, world ending stocks are forecast to decrease 7 percent to 17.3 million tons. However, this decline occurs entirely within China, where stocks at the end of July are projected to be down 17 percent to 9.2 million tons, according to a new report from the International Cotton Advisory Council. Stocks held outside of China, however, are forecast to rise 6 percent to 8 million tons.

Despite the growth in stocks held outside of China, international cotton prices as measured by the Cotlook A Index have averaged 82 cents a pound from August through May, which is well above the long-term average of 70 cents a pound.

Sales from China’s reserve through May reached over 1.1 million tons, which brings the volume of cotton held by the Chinese government to 7.2 million tons. China’s cotton production declined 2 percent to 4.9 million tons in 2016-17, but its mill use is projected to increase 2 percent to 7.7 million tons.

Imports by China are anticipated to increase 10 percent to 1.06 million tons, which is the first increase since 2011-12, though any further increase is limited by the import quota, ICAC noted. Thus, sales from the reserve are being used to make up for the shortfall in production, while mill use is forecast to remain unchanged at 7.7 million tons in 2017-18.

Production outside of China is estimated to be up 10 percent to 18 million tons in 2016-17 and is expected to grow 5  percent to 19 million tons in 2017-18 due to the high prices prevailing this season, the report noted.

Cotton area in India is forecast to expand 7 percent to 11.3 million hectares and assuming yield is similar to the four-year average of 528 kilograms per hectare, production could increase 3 percent to 6 million tons in 2017-18.

Farmers in the U.S. are projected to expand cotton area to 4.6 million hectares, with production expected to rise 12 percent to 4.2 million tons, ICAC noted.

World cotton trade is expected to remain unchanged in 2017-18 from 2016/17 at 8.1 million tons. Given that cotton production is projected to grow in the large consuming countries, the need to import cotton will likely decrease, ICAC surmised.

After falling 1 percent to 16.5 million tons in 2016-17, mill use outside of China could increase 2 percent to 16.9 million tons in 2017-18 due to much stronger growth in the global economy in 2017 and 2018.

Consumption in India is forecast to increase 3 percent to 5.2 million tons in 2017-18, as prices for cotton and yarn are likely to be competitive based on an increase in supply. Pakistan’s mill use is expected to rise 1 percent to 2.3 million tons, as competition from other mills in Asia remains stiff.

Consumption in Bangladesh is projected to rise 5 percent to 1.5 million tons, while Turkey’s mill use is expected to decline by 15,000 tons to 1.4 million tons due to completion from other countries and weak domestic demand.


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