The International Cotton Advisory Committee (ICAC) anticipates that, despite expected growth in cotton consumption this season, a world production surplus of 1.7 million tons is still expected.
This, according to ICAC, will bring 2014/15 world ending stocks to 21.3 million tons, up 9 per cent from 2013/14 and up 147 per cent from 2009/10 when stocks reached a 15-year low.
“The average world stock-to-use ratio in the 25 years before China began its reserve policy in 2011 was 47 per cent,” ICAC informs.
However, the volume of ending stocks would represent 87 per cent of the projected consumption in 2014/15, and is weighing heavily on prices this season.
“Even assuming reasonably lower production and higher consumption in the next few years, it will take several seasons for the significant volume of stocks to reach a more sustainable level, and low cotton prices are likely to persist while the market adjusts,” it says.
By the end of the season, stocks held outside of China are forecast to rise by 20 per cent, to nearly 9 million tons, the second largest volume after 2004/05 in the last 30 years. Much of this increase will be held by producing countries and will likely cause world exports to fall 15 per cent to 7.5 million tons.
Last spring, when growers in the Northern Hemisphere took decisions on what crops to plant, prices of cotton were much higher than the historical average and also from those competing crops like maize.
As a result, world cotton acreage for 2014/15 is estimated at 33.5 million hectares, up 3 per cent. However, world output is estimated down 1 per cent at 26.1 million tons from reductions in China and the Southern Hemisphere.
As a result of the contraction in area caused by changes in its cotton policy and falling domestic cotton prices, China’s cotton production is projected downwards by 7 per cent to 6.4 million tons.
In response to low world prices, Brazil’s production is also forecast to fall by 10 per cent to 1.5 million tons.
Meanwhile, ICAC informs, low prices and a significant drought are expected to reduce Australia’s production by 47 per cent to 470,000 tons.
India’s production is expected to remain stable at 6.8 million tons due to less favourable monsoons and despite an expansion in the cotton acreage by 5 per cent to 12.3 million hectares. However, its production will surpass China’s by over 300,000 tons, making it the largest cotton producer in 2014/15.
Production in the United States is looking to rebound 23 per cent to 3.5 million tons, partially offsetting declines in the other major producing countries.
International cotton prices have fallen substantially since last spring, when they were above 90 cents/lb to under 70 cents/lb in December.
In response to low prices, cotton consumption is forecast to increase by 925,000 tons to 24.4 million tons in 2014/15, after falling 1 per cent to 23.5 million tons in 2013/14.
Lower international and domestic prices are expected to bolster consumption in China by 6 per cent to just under eight million tons.
The contraction in China’s demand for cotton yarn imports is expected to cause India’s cotton consumption growth to slow to 4 per cent thereby reaching 5.3 million tons. This is down from 5 per cent in 2013/14 and 14 per cent in 2012/13 when demand for Indian yarn exports was much stronger. (AR)
