More distant cotton futures may represent a better bet than
near-term lots, Rabobank said, entering the debate on prices of the fibre, as
New York's spot contract extended its winning spree, hitting a six-month high.
Rabobank, expanding on a forecast last week that cotton
prices would enjoy a strong finish to the year, said that its outlook reflected
ideas of a further drop of 10% in world cotton sowings for 2013-14.
"Strong competition for land from other row crops, and a low
production profitability outlook, are expected to result in global cotton
production falling for the second consecutive season," Rabobank said,
forecasting a slide in global output to 102.2m bales.
The decline factors in a 19% drop in US plantings, to a
four-year low of 9.99m acres.
"Cotton seed sales
have been dismal in the US," the bank said.
'Key bullish factor'
The decline comes against a background of "modest" growth in
cotton demand, remaining "hampered by weak macroeconomic conditions and modest
apparel sales in 2013-14".
Rabobank cotton price forecasts
Q1 2013: 78.0 cents a pound
Q2 2013: 75.0 cents a pound
Q3 2013: 75.0 cents a pound
Q4 2013: 78.0 cents a pound
Prices: quarter average, spot New York contract
Nonetheless, with Chinese cotton imports to remain significant,
if well below last season's bumper levels, the market will see a "significant
reduction in the exportable supply of cotton", the bank said.Ending stocks in the main exporting countries, a dynamic which
in agricultural commodities tends to have an unduly strong impact on prices,
will fall by 24% next season.
"This dynamic is a key bullish factor, and the expectation
of falling exportable supply will likely encourage investor buying.
"In 2013, we expect the shift from large inventories of
cheaper exportable cotton to more expensive, and not-readily-available, importer
inventories to be the catalyst for cotton prices moving higher."
Upward pressure will be mainly felt by further-ahead lots,
gaining support from the tighter supplies ahead.
"We expect backwardation of the New York forward curve,"
which saw the March contract on Thursday gain a premium to the May lot, which
has in turn run up a small premium over the December contract, "to move towards
contango as it becomes clearer that new-season cotton supplies will be
diminished," the bank said.
"Growing exchange inventories and a 9% increase in the [2012
US] domestic crop suggests no near-term shortage."
The discount in futures for 2013-harvest cotton to contracts
for old-crop supplies "is not sustainable, and we anticipate higher prices for
the December 2013 contract".
The forecast of Chinese imports remaining significant is based
on the expense of domestic supplies compared with buy-ins.
Rise and fall of Chinese cotton imports
2013-14: 7.0m bales (R)
2012-13: 13.0m bales (R)
2011-12: 23.7m bales (R)
2010-11: 12.0m bales
2009-10: 10.9m bales
2008-09: 7.0m bales
Sources: Rabobank (R) and USDA
The 800,000 bales of cotton China sold from reserves last
week average 19,179 yuan a tonne, equivalent to about 140 cents a pound, some
60 cents a pound above international prices.
"Chinese imports are forecast to fall 45% in 2012-13, but
still represent 34% of global trade as the nation continues to absorb global
stocks," Rabobank said, if forecasting a further sharp decline, to 7.0m bales, in 2013-14.
Cotton for March stood 0.6% higher at 80.92 cents a pound in
mid-morning deals in New York, with the May lot 0.3% higher at 80.93 cents a
The December contract added 0.2% to 79.90 cents a pound.