The International Cotton Advisory Committee nudged higher its forecast for cotton prices – but not by enough to suggest it sees a continuation of the strong run in values which marked 2017.
The intergovernmental group pegged at 74 cents a pound its forecast for cotton prices, as measured by the Cotlook A index of physical values in 2017-18, on an August-to-July basis.
That represented an upgrade of 2 cents a pound on the previous forecast, and reflected a downgrade to the forecast for world cotton stocks, on a lower estimate for Pakistani output.
However, the forecast signals an expectation that prices will fall from current levels, with the Cotlook A on Tuesday at 89.35 cents a pound, and having averaged some 83 cents a pound so far in 2017-18.
Cotton prices proved one of the top performers in the agricultural commodity complex last year, with New York cotton futures rising by 11%, underpinned by buoyant US export sales and a continued strong take-up of fibre sold by China from state auctions.
However, some commentators have forecast a weaker performance ahead, with Societe Generale on Tuesday rating cotton futures as “as vulnerable to retracement” because of the extent to which the contract has been “overbought”, on its analysis.
The bank cautioned of pressure on prices once “the pace of US exports slows and supply outside of the US picks up”.
Louis Rose at US-based Rose Commodity Group flagged near-term pressure on prices from the imminent annual portfolio reweighting process by index funds, which “hold the majority of the non-commercial aggregate long position in cotton.
“In general, these funds tend to buy annual ‘losers’ and sell annual ‘winners’, which is less-than-friendly for ICE cotton futures” after their outperformance of 2017.
Pakistan hopes ease
The ICAC price outlook came as the committee halved to 220,000 tonnes its forecast for the rise in world cotton inventories over 2017-18, taking the estimate for carryout stocks just below 19m tonnes.
The downgrade reflected a downgrade to 1.9m tonnes, from 2.06m tonnes, in the forecast for output in Pakistan – where a somewhat disappointing rate of crop deliveries by producers has raised ideas that growth in output spurred by a $625m farm support package may not be as strong as had been anticipated.
Cotlook itself two weeks ago downgraded by 100,000 tonnes to 1.75m tonnes its forecast for Pakistan’s cotton output in 2017-18, although this till represents a rise of 85,000 tonnes year on year on its estimates.
‘Rising price of competing fibres’
Meanwhile, the ICAC underlined the boost to cotton demand expected from factors including rising prices of oil, which in turn lift the values of artificial fibres such as polyester.
“With a lower international price from the previous season and the rising price of competing fibres, global consumption is expected to grow,” the committee said.
Demand growth will be led by the likes of Vietnam, where consumption was forecast soaring 12% year on year to 1.3m tonnes, with use in Pakistan seen growing by 4%, and in India by 3%.
“Chinese mill use is expected to remain stable at 8.1m tonnes,” the ICAC added.