Global Cotton Mill Use: Short Term Is Positive, Medium Term Uncertain

International cotton prices finally seem to have stabilized in January 2012 at around $1 per pound after consistent decreases over the last 10 months. According to a press release from the International Cotton Advisory Committee, prices have steadied due to support provided by the Chinese government, which has made significant purchases in both the domestic and the foreign markets, as well as increasing demand for cotton globally.

But the medium-term outlook is still very unclear, for several reasons:

• World economic growth is expected to slow in 2012.
• World cotton mill use is projected to decrease 3% in 2011/12 to 23.7 million tons, although it could pick up again in 2012/13 if the global economy continues its recovery.
• Global cotton production is expected to increase 7% in 2011/12 to 26.8 million tons, which would be the largest level of production achieved in five years. However, global production could drop to 24.9 million tons in 2012/13 due to the lower prices received by farmers this season, improving attractiveness of grains and soybeans, and rising agricultural production costs.

As a result of the excess supplies in 2011/12, global cotton stocks are rebounding more than 30% to 12.3 million tons, following two seasons at relatively tight levels. Production is expected to continue exceeding consumption in 2012/13, which could translate into further increase in global cotton stocks, which could rise to 12.9 million tons.