The steep rise and high volatility of cotton prices over the first three months of the current season reflect primarily a combination of low global cotton stocks and continued demand by spinning mills, but has also been affected by panic induced by fear of defaults on contracts, the International Cotton Advisory Committee says.
Global cotton stocks fell by 25 percent in 2009/10 to 8.9 million tons, the smallest in seven seasons. In 2010/11, rising production and mill use are expected to keep global stocks tight.
The strengthening of prices over the last few months has been exacerbated by several additional factors:
- Difficulties to source cotton in the transition period between the two seasons.
- The drop in Pakistan’s production estimate due to devastating floods.
- Smaller-than-expected Chinese production.
- Restrictions on shipments from India.
- The weakening of the U.S. dollar.
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