ICAC’s Townsend: Fundamentals Are Driving Cotton Prices
February 1, 2011 Bloomberg
Cotton prices are being driven by “strong demand and fundamentals,” rather than speculators, said Terry Townsend, the executive director of the International Cotton Advisory Committee in Geneva on Monday.
“There’s a very high correlation between cash and futures prices. The cotton market is functioning. In the current situation prices have risen, speculative open interest has also risen, but so have commercial open positions.”
“Futures and cash track together and speculative activity does not seem to be driving the current situation,” Townsend said. “The current situation is being driven by strong demand and fundamentals.”
“There is no predictable relationship between oil prices and cotton prices.”
Cotton production in past years increased because of “widespread” adoption of biotechnology in India and China in the first half of the previous decade, causing output to exceed consumption, according to Townsend.
“By the 2009-2010 season, finally there’d been enough years of low prices that producers were discouraged,” Townsend said. “Consumption, which had declined during the recession, was surprisingly robust in the 2009-2010 season.”
For next season, Townsend forecasts a “significant increase in production that will alleviate this tight supply situation. Prices will go down.”
For the next few years, “we would expect prices to continue to trend downwards” because of increased production in response to the current price level. “The long-term outlook for cotton prices is still very attractive.”
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