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Cotton prices - will they defy doomsters again in 2014?

Cotton prices proved remarkably strong, compared with most agricultural commodities, in 2013, rising some 12%.

And this despite huge world inventories, which hit a record high of 89.1m bales as of the end of 2012-13 according to the US Department of Agriculture, and are expected to grow further this season.

However, the rub for investors is that most of these inventories are in China, leaving relatively little for the world market.

But will China continue the agriculture support programme behind soaring stocks?

Concerns over a switch from a guaranteed cotton price scheme, at levels well above those of the global market, to a direct farmer subsidy mechanism drove prices to below 74 cents a pound in November, before a recovery fuelled by dwindling stocks certified for delivery against ICE futures.


"The big question for 2014 is indeed how Chinese policymakers will support their cotton producers in the future.

"If China should now pursue a policy of direct subsidisation instead of maintaining artificially high cotton prices, Chinese cotton manufacturers are likely to continue to cut back on their imports.

"The point is that one of the key pillars of international cotton prices is now being seriously undermined. The downward trend should be mitigated, however, if recent reports coming out of China prove true, namely that the harvest was damaged by an early frost.

"Given the likelihood that China will reorient its cotton policy, a higher US supply in 2014 and given that the international market remains well supplied, we expect cotton prices to fall in the course of 2014."


"We expect to start 2014 constructively, given tight cash cotton supplies.

"China is committed to maintaining its existing support programme for 2013-14. This, along with healthy demand could result in strong US exports, leading to tighter US and ex-China global stocks.

"The start of the 2014-15 season will see prices come under pressure as world cotton acres rise and Chinese imports fall as China clarifies its intentions regarding its vast state reserves and price policy."


"Our base case is for cotton futures to ease by over 10% during 2014, as acres increase and US ending stocks rise on higher production.

Rabobank forecasts for cotton prices, 2014

Q1: 75 cents a pound

Q2: 77 cents a pound

Q3: 75 cents a pound

Q4: 73 cents a pound

Forecasts for quarter average, front New York futures contract

"Global cotton acreage will likely rise 3% year on year in 2014-15 to 33.3m hectares, as December-November 2014 price ratios favour the fibre over corn and soybeans.

"World cotton production is forecast to rise by 3.6m bales to 120m bales.

"Ending stocks in the US, the world's leading exporter and driver of the ICE cotton contract, are expected to rise to 5m bales in 2014-15 the highest level in six years."

Societe Generale

"We continue to see bearish risks as Chinese demand falls and global inventories begin to grow. Therefore, we remain bearish for the foreseeable future.

"As expected though earlier than we had envisioned Chinese cotton imports have slowed down with the start of the 2013-14 crop year. While some uncertainty still exists regarding their production, and its effect on imports, we expect a continuing reduction as the marketing year continues.

"Looking ahead, we continue to see stable to growing global inventories. This should keep prices in check over the next few years.

"However, our long-term projections eventually see declining supplies as the global economy, and demand for cotton, improves leaving us to expect higher prices in the long term."

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