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ICAC – Rising Cotton Stocks, Reduced Imports Puts Downward Pressure on Price

Higher ending stocks outside China and lower imports into China will put downward pressure on international prices in 2014/15. Additionally, world production is likely to exceed consumption in 2014/15, though by a lesser amount than in the past four seasons.

As a result, world ending stocks are expected to rise by six percent to 21.4 million tons, and the stock-to-use ratio would be 89 percent, meaning there would be enough cotton stocks to cover consumption for nearly 11 months.

This would be the fifth consecutive season of increase in ending stocks, after a 27 percent fall in 2009/10. China is estimated to hold nearly 60 percent of the world’s stocks, most of which is held in government reserve. At the end of June, the ICAC Secretariat estimates that the Chinese government will still hold 11.7 million tons.

While consumption in China is forecast to grow during next season, a strong preference exists for high quality cotton, making it unlikely that the government will be able to quickly draw down its reserve without offering significant discounts.

At the end of 2013/14, China is forecast to hold 11.5 million tons, an increase of 19 percent from 2012/13, and these stocks are likely to further expand in 2014/15. Additionally, ending stocks outside China are also expected to rise by seven percent, to 8.7 million tons at the end of this season and are projected to reach 9.7 million tons at the end of 2014/15.

In 2014/15, world production is forecast to drop by two percent to 25.3 million tons due to reduced planting in China, where cotton production may reach only six million tons. Production in the rest of the world is expected to increase one percent to 19.3 million tons.

In 2013/14, production in India is estimated at a record 6.5 million tons due to higher yields and better prices, which encouraged farmers to plant more cotton in 2014/15. Assuming yield is similar to the 3-year average, Indian cotton production is projected to reach 6.3 million tons in 2014/15, but this result is highly dependent on the timing of monsoon rains.

The Southwest region of the United States has received much needed rain, which could help reduce the abandonment rate and result in a higher harvested area than last season. In 2014/15, production in the United States is expected to grow 14 percent to 3.2 million tons.

In 2013/14, world consumption grew by less than one percent to 23.4 million tons, but a rise of three percent to 24.1 million tons is anticipated in 2014/15.

The high price of domestic cotton in China, restrictions on imports, difficulties with financing and weak demand for cotton yarn have caused many mills in China to further reduce operations this past season. However, with the ending of China’s reserve policy, many mills are anticipating lower prices later this year, as already reflected in futures markets. Consumption in China should improve slightly and reach 7.9 million tons in 2014/15.

India experienced strong consumption growth in 2013/14, increasing by five percent to 5.1 million tons. In 2014/15, consumption is projected to grow by an additional six percent to 5.4 million tons.

World trade is projected to decline by eight percent to 8.1 million tons, as a result of a reduction in China’s imports from 3 million to 2.2 million tons next season. Imports in the rest of the world are forecast to rise by three percent and reach 5.9 million tons.

Imports into Southeast Asia have grown in line with the expansion of consumption in the region, since little cotton is grown there. In 2014/15, the Secretariat expects imports by Bangladesh to increase by two percent, to nearly 900,000 tons, and those of Vietnam to rise by nine percent, to nearly 700,000 tons.

 

Source – International Cotton Advisory Committee

 

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