ICAC cuts forecast for cotton prices, again
The International Cotton Advisory Committee cut its forecast for cotton prices for a second successive month, citing raised expectations for world inventories, and despite an upgrade to much-watched Chinese imports.

The intergovernmental group cut by 5 cents to 82 cents a pound its forecast for the Cotlook A index of physical prices in 2014-15 which, including an element for transportation, is typically higher than New York futures.

The Cotlook A index on Tuesday stood at 88.40 cents a pound, compared with a price of 77.08 cents a pound for spot July futures, and 73.40 cents a pound for the best-traded December contract.

The downgrade, implying prices will fall 10% year on year, came as the ICAC raised by 510,000 tonnes to a record 21.43m tonnes its forecast for world stocks at the close of next season.

Signally, the upgrade came in the figure for inventories outside China which, in being more readily available to the international market, tend to have a bigger impact on prices.

'Downward pressure on prices'

Cotton stocks in countries outside China will rise by 7% to 8.7m tonnes at the end of this season, which closes this month, and by a further 15% to 9.7m tonnes at the close of 2014-15, the ICAC said.

That represented a 600,000-tonne upgrade on last month's estimate, and reflected both higher estimates for world production and greater pessimism on consumption.

"Higher ending stocks outside China, and lower imports into China, will put downward pressure on international prices in 2014-15," the council said.

Chinese imports

In fact, the estimate for Chinese imports, the world's biggest, next season was upgraded by 100,000 tonnes to 2.2m tonnes, although this represents a drop of some 27% year on year, a reflection of a change in the country's subsidy regime away from guaranteed prices from state buyers.

"With the ending of China's reserve policy, many mills are anticipating lower prices later this year.

"Consumption in China should improve slightly and reach 7.9m tonnes in 2014-15," an upgrade of 100,000 tonnes.

The ICAC is more upbeat on China's cotton imports than commentators such as the US Department of Agriculture, which sees them at 1.74m tonnes (8.0m bales) next season, and Rabobank, which pegs them at 9.0m bales (1.96m tonnes).

'Downward price correction'

The comments come at a time when cotton futures are already tumbling, hurt by improved prospects for the crop in the US, the top exporting country, besides by concerns of a Chinese import slowdown, and the huge world inventories.

December cotton futures on Tuesday set a two-year low of 72.20 cents a pound.

"Cotton's long-awaited downward price correction has commenced, and there is further downside price risk ahead," Rabobank said, forecasting prices averaging 70.0 cents a pound in the October-to-December period.

The bank estimated the US crop at 16m bales, (3.48m tonnes), compared with a USDA forecast of 3.27m tonnes, and an ICAC forecast of 3.2m tonnes.

Indian expectations

However, the ICAC is relatively upbeat on the Indian production forecast, seeing it hit 6.3m tonnes, above the USDA's figure of 6.21m tonnes (28.5m bales), and enough to take the country, on ICAC estimates, to top rank in world output, overtaking China's 6m tonnes.

Investors in many markets, including cotton, are taking a close interest in India's monsoon rains, which Shailesh Nayak, the top official in the country's earth sciences ministry, said on Wednesday had picked up in northern areas after a slow start.

Monsoon rains in June, the first month of the four-month monsoon season, were 43% below average across India.

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