ICAC lifts cotton price forecast, as it cuts world output hopes

04.10.2016

The International Cotton Advisory Committee, again, lifted its forecast for world cotton prices, citing weakened prospects for a world production rebound, which will see stocks shrink close to a five-year low.

The intergovernmental group raised by 3 cents a pound to 75 cents a pound its forecast for average world cotton prices, as measured by the Cotlook A index, in 2016-17, which began in August.

The raised forecast represents a 5-cents-a-pound rise in prices from last season, when the Cotlook A index - which measures physical prices, and typically trades at a premium to New York futures – averaged 70 cents a pound, its lowest in seven years.

The upgrade reflected a 490,000-tonne cut, to 18.14m tonnes, in the forecast for global cotton inventories at the close of 2016-17, with the weaker supply number implying a little more need for buyers to pay up to secure supplies of the fibre.

US, Indian output prospects

The ICAC's revision to its stocks forecast reflected in the main a reduction to 6%, from 8%, in its estimate for the pace that world production will rebound this season, with output now pegged at 22.45m tonnes.

The committee forecast US production at 3.3m tonnes - a 19% jump year on year, but an estimate below the 3.5m tonnes the US Department of Agriculture has factored in.

The ICAC factored in a rise of 10% in US cotton area this year, a little over half the growth the USDA forecasts.

For India, a drop in sowings was seen as offsetting much of the benefit of a recovery in yields from last season's drought-hit levels.

"Better prices for competing crops, the late arrival of the monsoon and yield losses from pest pressure last season discouraged farmers in India, the world's largest producer of cotton, and the planted area is projected to fall by 6% to 11.2m hectares."

China's stocks to shrink

Meanwhile, China, which India overtook in 2014-15 as the world's top cotton producer, will see its output drop further this season, by 3% to 4.7m tonnes - the lowest in at least a decade - depressed by falling sowings.

The fall in output will encourage Chinese cotton imports to pull out of a four-season decline, and are seen rising by a modest 20,000 tonnes to 980,000 tonnes in 2016-17.

The balance of demand, estimated at 7.1m tonnes, will be met by a further drawdown in the country's huge stocks of the fibre.

"Ending stocks in China are expected to decrease by 13% to 9.9m tonnes in 2016-17 as the government continues to dispose of its reserves," the ICAC said.


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