Hefty stocks will keep up pressure on cotton prices, the International Cotton Advisory Committee said, even as it more than halved its forecast for the world production shortfall, citing reduced output hopes.
The ICAC cut by 500,000 tonnes to 24.6m tonnes its forecast for global cotton output in 2020-21, as started in August, saying that “almost all major producers except for India face lower production estimates”.
India was seen raising its output to 6.2m tonnes (28.5m bales), after a strong monsoon which was also highlighted by a briefing by the US Department of Agriculture’s New Delhi bureau this week, pegging output at 29.4m bales.
In fact, the USDA bureau cautioned that rains had been too strong in some areas, meaning that “plants may fail to absorb the soil nutrients, which may lead to square and boll dropping”, besides causing rot in buds too.
On global cotton consumption, the ICAC maintained expectations for growth to 24.3m tonnes, curtailing the output surplus to some 300,000 tonnes.
Nonetheless, this adds to large stocks which have already been built up, and which the committee said in a separate report are equivalent to meet nearly one full year of global demand.
“At the current global stock-to-use ratio, the world has enough quantities of cotton lint in storage for nearly one year of mill-use even with no additional production,” the ICAC said.
Given the extent of the inventories even should “projected economic recovery materialize and subsequent demand growth recover, under the current quantities of global reserves, it may still take additional time for prices to recover”.
‘Unpredictable and chaotic’
The ICAC forecast prices, as measured by the Cotlook A index of physical values, averaging 64.4 cents a pound in 2020-21, compared with a forecast last month of 64 cents a pound, but staying well below the recent market level.
The index on Thursday stood at 71.30 cents a pound, up 0.50 cents a pound on the day.
The comments come amid what the ICAC termed “one of the most unpredictable and chaotic periods in living memory”, with the coronavirus pandemic adding to setbacks that the sector already faced.
“Covid-19 has presented an additional challenge to the cotton sector that had already been under pressure from long-term decline in use and declining prices since 2018 stemming from global trade tensions.”
‘Still extremely bearish’
The ICAC’s assessment of the extent of world supplies chimes with that of many other commentators, including Ron Lee at McCleskey Cotton, who termed the world cotton balance sheet “still extremely bearish, at least on the surface”.
Indeed, the extent of supplies was likely meaning mills “holding out on any fixations” of cotton purchases against New York futures prices, “hoping for another test of the 200-day average around 63 cents a pound”.
The New York December contract stood on Friday at 65.83 cents a pound, down 0.1% on the day.
However, noting too that the US “farmer remains largely unsold on October 1, a huge anomaly”, he forecast prices holding near current levels “until we have a better handle of what we actually have”.
US cotton production forecasts have suffered a series of downgrades thanks to weather setbacks from storms which headed from the Gulf through the US cotton belt, most lately tropical storm Beta.
The US Department of Agriculture last month cut its forecast for this year’s harvest by 1.02m bales to 17.06m bales thanks to losses to both area and yield prospects.
Cotton Outlook two weeks ago cut its forecast to 3.67m tonnes (16.85m bales), with the likes of Rabobank too expecting a sub-17m-bale crop.
Some price support has also come from US export sales data which stood at 233,751 running bales for upland cotton alone last week.
Louis Rose at Rose Commodity Group said that “the US is 58% committed” in terms of combined sales and completed exports to meeting the USDA’s 14.6m-bale forecast for 2020-21, with the season only two months old.