Cotton prices to drop to five-year low in 2014-15

Cotton prices next season will prove their weakest in five years, the International Cotton Advisory Council said, cautioning over the slide in Chinese imports prompted by excessive stockpiling.

The ICAC, an intergovernmental group, cut by 2 cents to 87 cents a pound its forecast for average cotton prices, as measured by the Cotlook A index of physical values, in 2014-15, which starts in August.

The downgrade reflected, besides a small upgrade of 50,000 tonnes to a record 20.92m tonnes in the forecast for world inventories at the close of next season, an increase in particular in the volume of stocks held outside China.

Being freely available to the world market, cotton supplies held in major exporting countries such as India and the US are seen as having a particular influence on prices.

'China will be importing less'

In fact, the level of stocks held outside China will rise by 7% to 9.1m tonnes over next season, on ICAC estimates.

That is far bigger than the 0.9% increase to 8.53m tonnes expected by the US Department of Agriculture, whose data are also closely watched by investors.

"The projected accumulation of cotton stocks will weigh on international cotton prices in 2014-15, particularly as more stocks will be held outside of China," the council said, forecasting prices this season averaging 91 cents a pound.

"China will be importing less of the surplus [world] production than in the last two seasons."

Subsidy reform

In fact, China will import just 2.1m tonnes of cotton next season, on ICAC estimates, below the 2.40m tonnes expected by the USDA, and down from the record 5.3m tonnes set in 2011-12.

The council's forecast reflects in part the switch China's subsidy policy from offering a guaranteed price for the fibre to direct payments to farmers.

The guaranteed price, in being set above the world market price, fostered the build in China's inventories to some 11m tonnes, in underpinning domestic values, and prompting mills to favour cheaper imports.

However, the ICAC also highlighted the dent to Chinese demand from the policy.

"Since 2011-12, the high price of cotton in China hurt its spinning industry, but helped the spinning industry in other countries, such as India, Pakistan, Bangladesh, Indonesia, and Vietnam.

"China's consumption fell by 4% in 2012-13 to 8.3m tonnes and is expected to fall by 1% in 2014-15 to 7.8m tonnes.

'Net drying conditions'

Nonetheless, the comments come amid something of a recovery in New York cotton prices from late May lows, amid revived concerns for the crop in Texas, the top US producing state.

While much of the southern and central Plains received much-needed precipitation over the weekend, "showers in west Texas were minimal relative to weekend temperatures", World Weather said.

And the forecast is for dryness to remain dominant.

"West Texas cotton areas will experience net drying conditions all of this week and the few showers that evolve periodically this weekend into next week will be lost to evaporation shortly after they occur," the weather service said.

Slow sowings

Official crop data overnight showed cotton plantings still lagging in the state, where farmers had completed 62% of sowings as of Sunday, 13 points behind the average pace.

And on condition, the first rating put 35% of the crop as good or excellent, up from the 28% last year but below the 47% in early June 2012.

New York cotton futures for July stood 1.1% higher at 87.43 cents a pound at 05:30 local time (10:30 UK time),  although headway in the new crop December lot was less marked, up 0.1% at 78.10 cents a pound.  

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