The International Cotton Advisory Committee cut its forecast for cotton prices next season as it raised expectations for world inventories, despite underlining the prospect of rise in demand close to record highs.
The intergovernmental group trimmed by 2 cents, to 82 cents a pound, its forecast for cotton prices as measured by the Cotlook A index in 2018-19, on an August-to-July basis.
The downgrade took the figure below the 83 cents a pound expected for this season, and would indeed represent the first drop in values in three years.
However, the more elevated prices – which compare with the 70 cents a pound reported for 2015-16 – have sealed the rally’s demise, through encouraging extra sowings, the committee said.
‘Extra sowings’
“Cotton prices have remained high in 2017-18 at an average of 84.63 cents per pound thus far,” the ICAC.
“Higher prices are expected to impact planting decisions to expand area under cotton for the 2018-19 season.”
World cotton area, which “has averaged 32.4m hectares over the last 10 years… is projected to grow moderately during the next season”.
‘Drought conditions a concern’
This includes an expectation of US sowings of 5.08m hectares, an 11% rise on ICAC data.
This figure, equivalent to 12.55m acres, is actually smaller than that expected by the US Department of Agriculture, which in late March estimated domestic cotton seedings this year at 13.47m acres, including 13.21m acres of upland cotton.
The ICAC added that “drought conditions remain a concern for the cotton area in West Texas which represents approximately 25% of the US production”.
Still, the committee hiked by 340,000 tonnes to 25.68m tonnes (118m bales) its forecast for world cotton production in 2018-19.
The upgrade, coupled with revisions to balance sheets in previous years, fed through into an estimate of world stocks of 18.28m tonnes (84m bales) at the close of next season, an upgrade of 350,000 tonnes.
Quality gap
The stocks rise came despite a improved estimate of world consumption next season, lifted by 200,000 tonnes to 26.7m tonnes, taking it 1.22m tonnes higher year on year to levels last seen in the boom around 2005-07.
“World cotton consumption is expected to continue to grow steadily through 2018-19,” the ICAC said, noting too the prospect of increased purchases by importing nations, such as China.
“Imports by China are projected to continue to increase for the fourth consecutive year to 1.5m tonnes.”
China’s quest for high-quality cotton has been underlined by results of auctions of stake stockpiles, which last month saw 100% take-up of top grade cotton from Xinjiang, the main growing province.
“Lower grades have sold at 25% of available quantity.”