Tuesday, May 3, 2011

Experts lower cotton price hopes as orders dry up

by Agrimoney.com

Cotton experts signalled that the slide in cotton prices might prove steeper than had been thought as they highlighted "slowing demand" for the fibre from mills in the face of depressed margins.
The International Cotton Advisory Committee forecast that prices of the fibre, as measured by the Cotlook A basket of physical values, "will decline significantly" in 2011-12, while "probably" staying above a 10-year average of 60 cents per pound.
The forecast represents a significant change in tone on an April forecast that cotton prices would "remain strong" next season, and "remain considerably higher than the 10-year average".
The committee, which in April forecast the Cotlook A averaging 138 cents a pound in 2011-12, down 15% year on year, failed this time to reveal a price forecast.
'Demand weakening'
The shift in outlook followed April's 29% fall in the Cotlook A to 173 cents a pound, the first month-on-month decline in eight months, if leaving the price "very high by historical standards".
"The main reason explaining the recent drop of cotton prices seems to be a significant slowing in demand," the committee, an intergovernmental group, said.
"Very high cotton prices, problems of credit access, and the fact that cotton yarn prices did not increase as fast as cotton prices and started yielding ground in mid-March 2011, are all affecting mill use."
The US, the world's top shipper of the fibre, has reported five successive weeks of negative weekly cotton exports – that is, with cancellations exceeding new orders.
The ICAC forecast world consumption rising by 2.8% to 25.8m tonnes next season, well behind production which, fuelled by high prices, will jump 11.3% to 27.6m tonnes, putting the world back into an output surplus for the first time since the mid-2000s.
Slow plantings
This week, cotton prices have been further undermined by unexpected rains in Texas, America's top cotton-growing state, where dry weather had threatened to hamper famers' efforts to ramp up production.
US cotton farmers had, as of Sunday, sown 18% of their crop, behind the average pace of 24%. In Texas, 16% of the crop was planted, compared with 23% typically by the start of May.
On New York's Ice futures markets, the fall in cotton prices of more than 20% from March's record high of 227 cent a pound prompted the exchange from Monday to lower to 6.0 cents, from 7.0 cents, the maximum daily limit which contracts are allowed to trade.

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