Cotton prices to 'stay high for the next season'

by Agrimoney.com

Cotton prices are to "remain high for next season", despite better prospects for production in Australia, where dismal winter weather has left growers a silver lining, US farm officials said.

The US Department of Agriculture upgraded by 500,000 bales to a record 4.5m bales its forecast for Australia's 2010-11 cotton crop despite the "excessive" rainfall and flooding that the country, the fourth-ranked exporter of the fibre, suffered from late November to early January.

"Although the floods had a devastating impacts in certain areas, field observations by [official US] crop-assessment specialists… indicate that most cotton growing areas actually experienced limited flood damage," the USDA said.

"The majority of cropping areas are not benefiting from the improved soil moisture profiles and abundant irrigation reserves" left by the weather which, in Cyclone Yasi, included what was billed as the most severe ever storm to hit Queensland, one of Australia's two main cotton growing states.

"Prospects are high for both yields and total harvested areas, and by all estimates the Australian cotton industry is on track for a record cotton harvest."

'Little buffer' 

Nonetheless, the USDA said that cotton prices "are likely to remain high for next season", given weaker prospects for demand in India and soaring demand in China, the top consumer and importer, and producer, of the fibre.

Wasde 2010-11 cotton changes. March estimate, (change on Feb) Australian production: 4.0m bales, (+500,000 bales) Brazilian production: 8.8m bales, (+600,000 bales) Indian production: 25.0m bales, (-1.0m bales) Chinese production: 29.5m bales, (-0.5m bales) World year-end inventories: 42.33m bales, (-480,000 bales)

"China's ending stocks have continued to tighten, indicating strong import demand going forward," the USDA said.

"With stocks already low, and the state reserves depleted, the gap between China's production and consumption will have to be filled by more imports."

Yet thin supplies left the world with "little buffer in case of either problems with production or increases in demand in major end use markets".

India downgrade

The USDA attributed its downgrade to India's production estimate to "drier-than-normal weather toward the end of the season", notably in Gujarat.

"Recent market arrivals indicate a smaller crop than previously projected," the department said, cutting its forecast for Indian output by 1.0m bales to 25.0m bales .

"The poor late-season weather has resulted in declining yield prospects."

The potential for continued export restrictions by India, which has clamped down on shipments in an effort to keep a lid on domestic prices, "raises concerns about the international availability of their stocks, which adds greater uncertainty to an already unsettled market," the USDA added. 

In New York, May cotton recovered early losses to stand at 205.58 cents a pound at 16:15 GMT, up 0.6% up on the day.

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