Cotton price to remain firm despite record harvest

by Agrimoney.com

Cotton prices are remain relatively high next season despite a record crop, the International Cotton Advisory Committee said, even as it raised further its hopes for the harvest.

The intergovernmental group raised by 200,000 tonnes to 27.6m tonnes (127m bales) its forecast for world cotton output in 2011-12, putting the crop nearly 1m tonnes ahead of the current record, hit four seasons ago.

"Farmers are expected to expand cotton area in all producing countries," the committee said, forecasting sowings at a seven-year high of 36m hectares.

And it restated caution over consumption, which the ICAC forecast will grow by 2.6% to 25,4m tonnes, a little over half the economic growth expected by International Monetary Fund.

Historically, demand for cotton - which as the raw material for clothing rather than food is more sensitive to consumer sentiment – has grown step by step alongside world economic expansion.

Price implications 

However, "competition from chemical fibres" will "limit growth in mill use during 2011-12", the committee said, forecasting the best growth in China, Pakistan and Turkey.

Nonetheless, prices will remain firm – if appearing unlikely to continue their run of all-time highs.

"Although prices are expected to decline from current record levels, it is likely that prices will stay substantially higher than the average of 60 cents per pound that prevailed during the past decade," the ICAC said.

The committee's estimates imply a stocks-to-use ratio for cotton of 44% in 2011-12 a figure which, while higher this season's 37%, a level which has driven the jump in prices, is still below levels of more than 50% for most of the previous 15 years.

The stocks-to-use ratio is a much-used measure of the availability of a commodity's supplies, and therefore of the price it may achieve.

ICAC vs USDA 

The ICAC's 2011-12 forecasts are marginally more downbeat that those released by the US Department of Agriculture last week, forecasting production of 127.5m tonnes of cotton and consumption of 120m tonnes.

Indeed, the USDA pegged world inventories at 50m tonnes at the close of the season, implying a stocks-to-use ratio of less than 42%.

Cotton for March delivery stood 6.13 cents higher at 202.0 cents a pound in New York at 10:00 GMT, with the better-traded May lot up 7.0 cents, the exchange maximum, at 200.6 cents a pound

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