The International Cotton Advisory Committee opened the new
cotton season by raising its price forecast, despite the tumble in New York
futures, citing the diminished premium over values of artificial fibres.
The intergovernmental group, which in June and July had cut
hopes for cotton values in 2014-15, which started on Friday, raised its
forecast by 3 cents to 85 cents a pound, as measured by the Cotlook A index of physical
The upgrade came despite a continued decline in prices of
New York futures which, for the best-traded December lot, fell 14.5% over July,
undermined by prospects of a strong US harvest, and of demand from China, the
top importer, being diminished by a change in subsidy policy.
China's previous policy, in offering farmers guaranteed prices
well in excess of world market values, had spurred a large build-up in
government inventories, while encouraging mills to opt for cheaper imports.
However, the ICAC, while raising its forecast for the US
harvest by 300,000 tonnes to 3.5m tonnes, and lifting its estimate for Chinese
production by 200,000 tonnes to 6.2m tonnes, offset the increases with a
downgrade to the Indian harvest.
"Although the monsoon has arrived in India, the volume of
precipitation has varied widely and yield is likely to suffer in some places,"
the ICAC said, cutting its forecast for the country's production to "just over"
6m tonnes, from a previous estimate of 6.5m tonnes.
Indeed, the disappointing monsoon appears to have cost India
the chance of overtaking China as the world's top cotton grower.
And the committee raised its forecast for world demand in
the newly-started season by 360,000 tonnes to 24.50m tonnes, citing the boost
from a lower premium over artificial fibres, notably over the benchmark of polyester
Cotton prices in the spring built a stiff premium as they
rallied nearly to 100 cents a pound, as measured by the Cotlook A, while polyester
declined from last year's levels of 74-76 cents a pound to 65 cents a pound.
"However, the situation changed significantly in July, with
the Cotlook A index falling to 80 cents a pound while polyester has climbed
back up to around 73 cents a pound," the ICAC said.
It also highlighted lower prices in China where, thanks to
the change in subsidy policy, prices on the local market have fallen from
around 140 cents a pound for most of last season to some 126 cents a pound.
Chinese demand will soar 5% to 7.9m tonnes this season.
Separately, Rabobank too stressed that "at current price
levels, cotton is much more competitive against man-made fibres" as it forecast
a recovery in futures to average 73.0 cents a pound in the last three months of
2014, above the level futures are pricing in.
"In the fourth quarter, a seasonal pick-up in physical
offtake coupled with the lowest new crop prices of the fibre since 2008 are
expected to stimulate demand," the bank said.
New York cotton futures for December stood 1.4% higher at
64.17 cents a pound at 09:30 local time (14:30 UK time).
The Cotlook A index on Friday stood at 72.15 cents a pound.