Cotton prices to tumble in 2018-19, despite surge in Chinese imports

26.02.2018

Cotton prices will drop by some 12% next season, despite a surge in Chinese imports, and the prospect of 20% of the crop planted in the drought-hit US southern Plains being lost, US officials said.

The US Department of Agriculture, unveiling its first full estimates for world cotton supply and demand in 2018-19, forecast that the Cotlook A index of physical prices will “decline about 10 cents to 73 cents a pound” on a year-average basis.

The forecast came despite a forecast that world cotton stocks will fall by 5.9m bales to a seven-year low of 82.7m bales over the season.

Meanwhile, Chinese imports, another dynamic closely watched by traders, may soar 40% to a four-year high of 7.0m bales as the country’s drive to erode its huge state inventories, built by a now-scrapped guaranteed pricing scheme, bears fruit.

Shrinking Chinese stockpile

However, the USDA added that it was the extent of China’s success in cutting its stockpile, which was behind its forecast for the slide in world stocks.

“China’s reserve could fall to just about 20% of its peak of 53m bales by the end of 2018-19.”

Inventories outside China, which in being available to the world market are more significant in pricing, were forecast growing next season by some 1.4m bales to a record high of 49.1m bales.

The Cotlook A index, which on Thursday stood at 90.20 cents a pound, was forecast falling “due to projected higher stocks outside of China.

“Increased supplies outside of China are expected to pressure cotton prices in 2018-19.”

‘Drought will persist’

The USDA stopped short of issuing forecasts for where the cotton stocks growth will be centred, with world production in fact seen shrinking in all major growers in 2018-19, dragging global output down some 1.4m bales to 117.0m bales.

For the US itself, officials forecast stocks static at 6.0m bales next season, thanks in part to a forecast of exports growth by 1.5m bales - to a 13-year high of 16.0m bales.

Meanwhile, US production was seen falling by nearly 1.8m bales, to 19.5m bales, despite the estimate for higher sowings unveiled on Thursday.

The USDA forecast a rise in the crop abandonment rate to 15% of sowings, factoring in a rate of 20% for the southern Plains, which typically produces more than half the US crop, but where drought is spreading.

As of mid-February, the seasonal outlook from official US meteorologists for the southern Plains “indicates that drought will persist through the end of May for much of the region, with the probability of below-average precipitation forecast”.

More generous harvest forecast

The forecast came hours after Cotton Outlook, the analysis group behind the Cotlook A, forecast a world cotton production shortfall of 583,000 tonnes (2.68m bales) next season – well below the 5.9m-bale deficit expected by the USDA.

Cotton Outlook forecast world demand next season at 26.71m tonnes (122.7m bales) in line with the USDA estimate.

But global production, at 26.13m tonnes (120.0m bales) was seen some 650,000 tonnes (3m bales) ahead of the USDA forecast.

The Cotton Outlook data included an estimate of a 4.51m-tonne (20.7m bale) US harvest, and a 6.46m-tonne (29.7m bale) Indian crop.

The USDA forecast India’s production at 27.5m bales, a drop of 1m bales year on year, seeing a falli in sowings.


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