prices will retreat next season, despite a drop in world inventories, the International Cotton Advisory Committee said, entering the market debate on the impact of a forecast surge in US sowings.
The ICAC, in its first forecast for average cotton prices in
2017-18, pegged them at 73 cents a pound, as measured by the Cotlook A index of
physical values which, in including an element for transport, tends to trade at
a premium to much-watched New York futures.
Prices at that level would be 5 cents lower than the 78
cents a pound expected for 2016-17, on an August-to-July basis, and bring to an
end the recovery from the multi-year low of 70 cents a pound recorded last
The forecast comes amid some uncertainty in cotton markets, as
investors consider the impact of contrasting influences of strong demand for US
exports of the fibre, but the prospect of a surge in the country's plantings
The US Department of Agriculture, in a much-watched report on
Friday, pegged US cotton plantings this year at 12.2m acres – a rise of 21% year
on year, and some 800,000 acres more than investors had expected, according to
a Reuters poll.
'Production to remain
The ICAC acknowledged that "high yields and firm prices will
encourage farmers in the US to expand cotton area in 2017-18".
Cotlook A prices, by season average
2017-18: 73 cents a pound (ICAC forecast)
2016-17: 78 cents a pound (ICAC forecast)
2015-16: 70 cents a pound
2014-15: 71 cents a pound
2013-14: 91 cents a pound
Cotlook A stood at 87.40 cents a pound as of April 3
However, the intergovernmental group nudged higher by only
100,000 tonnes its forecast for US cotton output this year, leaving it on a par
with 2016 production, which was supported by an unusually low proportion of
crop abandonment and an elevated yield.
"Production is expected to remain unchanged from 2016-17 at 3.8m
tonnes [17.5m bales] as the average yield is assumed to be closer to the five-year average," the
Indeed, the ICAC trimmed by 110,000 tonnes to 16.55m tonnes
its forecast for world inventories at the close of 2017-18, citing a small
increase to 24.4m tonnes in the estimate for consumption next season, spurred
by the prospect of weaker prices.
"Global consumption may recover by 1% in 2017-18… as cotton
prices decrease, and growth in the global economy is expected to be much stronger
in 2017 and 2018."
The ICAC's comments come amid significant debate among
cotton investors over the significance of the US sowings data, which Rabobank
termed a "strong bearish signal" for futures.
"With cotton prices particularly attractive against
alternative row crops, the market anticipated the increase, but certainly not
to the extent of the USDA," the bank said.,
The sowings estimate suggested "potential" for US cotton
stocks at the close of 2017-18 "to reach some 7m bales, the highest since
2007-08, through the incidence of a trend yield".
Commerzbank said that after the USDA plantings figure, "it
is more likely that the 2017-18 crop year will see a marked rise in the US
cotton crop", a factor which could provoke selling pressure as speculators unwind
a near-record net long in futures and options in the fibre.
"Correction potential… is likely to have materialised by
now," Commerzbank said, adding that this "points to another price fall in the
At Commonwealth Bank of Australia, Tobin Gorey also flagged
the potential for hedge funds to exit, assuming futures - which in the last
session recorded their biggest fall in six months – continue to struggle.
"We suspect momentum investors, with a near-record investor
long position, currently swing considerable weight in the cotton market," Mr
"Consequently our concern of late has been the market's slowing
upward price momentum. As momentum fades, some investors will start to see the
exit light flashing on their dashboards."
Nonetheless, New York cotton futures for May stood at 75.59
cents a pound in early deals on Tuesday, a rise of 0.2% on the day, although
down 1.2% from the level they were trading at in the run-up to the US sowings
New crop December cotton futures traded at 73.81 cents a
pound in early deals on Tuesday, a rise of 0.5% on the day – and up 0.2% since before
the US sowings data were released.