ICAC cuts cotton price outlook, as stocks swell

The International Cotton Advisory Committee slashed hopes for cotton prices to a five-year low, citing the prospect of a jump in inventories in exporting nations to a record high.

The ICAC cut by 5 cents to 80 cents a pound its forecast for the average 2014-15 cotton price, as measured by the Cotlook A index of physical values which, in including an element for transport, typically trades at a premium to New York futures.

The downgrade, to the lowest since the 78 cents a pound recorded for 2009-10, came as the intergovernmental group lifted by 530,000 tonnes its forecast for world production in the season.

It raised by 620,000 tonnes its estimate for inventories at the close of the marketing year, to an all-time high of 22.25m tonnes (102m bales).

'Negative pressure on prices'

Signally, this inventory figure comprises record stocks outside China, of 9.7m tonnes (44.6m bales) - in contrast to recent seasons when the relatively low supplies available to the world market have supported prices.

ICAC world cotton forecasts, change on previous and (year on year)

Production: 26.05m tonnes, +530,000 tonnes, (-40,000 tonnes)

Consumption: 24.37m tonnes, -130,000 tonnes, (+40,000 tonnes)

Imports: 7.97m tonnes, +40,000 tonnes, (-1.05m tonnes)

Exports: 7.97m tonnes, +40,000 tonnes, (-1.04m tonnes)

Ending stocks: 22.25m tonnes, +620,000 tonnes, (+1.69m tonnes)

The 2014-15 expansion in world ending stocks outside China "will put negative pressure on prices this season as China continues to liquidate its significant stocks", the ICAC said.

Previously, world stocks have been concentrated in China, where a programme of guaranteed prices to farmers prompted a huge build in government inventories, essentially removing these supplies from the world market.

This season, a rejig in China's farm support regime is leading to some selling of state inventories, reducing the country's need for imports.

Production upgrades

The committee's upgraded production estimate reflected increased hopes crops in all the big-three producing countries China, India and the US but particularly for India, for which the estimate was lifted by some 300,000 tonnes to 6.3m tonnes.

"Due to the late arrival of the monsoon, the planting season was extended and area in India is estimated at 11.8m hectares, up by 1.3% from 2013-14," the ICAC said.

Separately, the US Department of Agriculture's New Delhi bureau pegged Indian output at 29.5m bales (6.4m tonnes), citing a rise of 3.4% to 12.1m hectares in sowings, besides improved yield expectations.

"This is due better agronomic practices adopted by farmers coupled with renewed efforts by the government to provide assistance and improve yields under the National Food Security Mission," the bureau said.

'Vie for the title'

However, it is as yet unclear whether India will take the crown of top world cotton producer from China, for which the ICAC lifted its production forecast by 200,000 tonnes to 6.4m tonnes.

"China and India will vie for the title of largest producer of cotton, as the full impact of this year's monsoon on India's yields is unknown," the committee said.

The ICAC, citing "much-needed rain", lifted its forecast for US production by 200,000 tonnes to 3.7m tonnes (17.0m bales), although this remains below a USDA estimate of 3.81m tonnes.  

In New York, the benchmark December cotton contract was 0.4% higher at 65.55 cents a pound in early deals.

Corn, soy prices near the bottom. Cotton, sugar to revive
Cotton, sugar u-turns slow hedge funds' ag selling
Rains refresh Aussie crops, but miss sheep farms
SocGen warns against getting too bearish on cotton
Agricultural Commodities
Agricultural Markets
Agricultural Companies
Agricultural Events