The Cotton Board: Prices Unlikely to Gain in Coming Months
April 19, 2012 After attempting to move higher in mid-March, cotton prices shifted lower. The most actively traded May New York futures contract increased from levels near 87 cents/lb to those near 94 cents/lb. In more recent trading, prices have been ranging between 88 and 93 cents/lb. Values for the A Index followed those in the futures market, climbing to a level above 103 cents/lb before decreasing to levels just below 100 cents/lb, according to The Cotton Board.
The revisions in this month’s USDA report featured significant changes to estimates related to India, with estimated 2010/11 ending stocks increasing 3.3 million bales.
Although there is some uncertainty regarding why there was more cotton than previously estimated, it could be assumed that the existence of so much extra cotton in India at the end of last crop year was due to the export limits. The historical revisions that led to the increase in Indian stocks were a principal reason that world ending stocks were revised 3.7 million bales higher. At 66.1 million bales, the current estimate for 2011/12 ending stocks represents a new record, surpassing the previous one set in 2006/07 by 3.6 million bales.
The combination of higher ending stocks, and a lower world consumption figure (down 980,000 bales to 107.7 million), caused the stocks-to-use ratio to increase by 4% this month. The current estimate for the 2011/12 stocks-to-use ratio is 61.3%, the third highest on record. With so much cotton relative to demand, it could be difficult for cotton prices to move beyond recent trading ranges in coming months and is possible that prices could face downward pressure in the coming crop year. Significant questions facing world cotton markets next crop year are related to government intervention, particularly whether the Chinese reserve program will be an active buyer of cotton on the international market.
Next month’s USDA report will feature the first complete set of estimates for world supply and demand, and may shed additional light on questions related to the size of next season’s increase in ending stocks and expectations regarding Chinese import demand.
The Cotton Board, created in 1966 and headquartered in Memphis, Tenn., is the fiduciary and administrative arm of the Cotton Research and Promotion Program.
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