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Cotton prices to fall next season to nine-year low, says ICAC

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Cotton prices will tumble next season to the lowest in nine years, the International Cotton Advisory Committee said, flagging the prospect of stocks of the fibre outside China hitting "one of the highest volumes on record".

The intergovernmental group cut to 69 cents a pound, from a revised 71 cents a pound, its forecast for average world cotton prices 2017-18, which begins next month.

The downgrade took the figure even further below the average price estimate for this season – which was nudged higher by 1 cent a pound to a four-year high of 82 cents a pound.

And it left the forecast for world prices - as measured by the Cotlook A index of physical values, which in including an element for transport typically hold a premium over futures – at the lowest since 2008-09, when values averaged 61.2 cents a pound.

'Prices should fall'

The downgrade came as the ICAC hiked by 470,000 tonnes (2.16m bales), to 17.15m tonnes (78.8m bales), its forecast for world cotton inventories at the close of next season, reducing to 150,000 tonnes the expected decline in stocks.

Critically for price prospects, that drop will be focused on China, whose cotton supplies, in not being available to the world market, are typically less important in setting global prices than those in exporting countries such as India and the US.

"China's expected to decline by 18% to 7.6m tonnes," the committee said, adding that the country share of world inventories "is expected to decline to 44%, which would be the first time since 2011-12 that it held less than half of global stocks".

Cotton stocks held outside China, meanwhile, "are expected to rise by 17% to 9.6m tonnes.

"This would be one of the highest volumes on record and indicates that prices should fall."

Large stocks, in cutting the need for buyers to pay up to secure supplies, are seen as a negative signal for prices.

Extra plantings

China has been reducing its stocks through measures including the reform of a guaranteed pricing scheme for farmers – which in being set at a level well above world values, had led to an inventory build-up, which is now being reversed by a programme of auctions from stake stockpiles.

By contrast, supply prospects elsewhere have been boosted by the knock-on effect of this season's elevated prices in encouraging farmers to plant the fibre.

In India, for instance, sowings are expected up 8% at 11.3m hectares.

"An early and adequate monsoon, a higher minimum support price, and the prospect of better returns from cotton compared to competing crops have encouraged farmers in India to expand area."

In Pakistan too, sowings were seen rising by 8%, to 2.7m hectares, while higher seedings were seen helping US output this year soar by 12% to 4.2m tonnes.

By Mike Verdin

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