Cotton Demand Outlook Is ‘Very Optimistic’ on China, India, Olam Predicts

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The outlook for demand for cotton, the best-performing commodity in the past year, is “very optimistic” as economic growth in China and India boosts incomes, driving consumption, Olam International Ltd. (OLAM) said.

“Consumption is closely entwined to economic prosperity,” said Jagdish Parihar, managing director, cotton division at Olam, a Singapore-based trader of farm commodities. “Three-to-four percent sustained demand growth is quite a realistic possibility,” Parihar said in an interview in Dubai yesterday.

Cotton has more than doubled in the past year, reaching an all-time high this month, on shrinking global supplies and increased demand, especially from China, the biggest user. Prices will be volatile, with supply set to fluctuate as the crop competes for acreage against costlier food, said Parihar.

“The cotton market is part of the agricultural complex which is itself undergoing a significant demand-supply imbalance as a result of the economic and commodity supercycle that we are experiencing,” he said. “Food inflation is high, and therefore cotton will always be fighting for acres.”

Cotton surged 92 percent in 2010, the biggest annual gain since 1973. The price has advanced 157 percent in the past 12 months on the S&P GSCI Commodity Index, beating rallies in silver and coffee, which also more than doubled. The price, which peaked at $2.1970 per pound on March 7, traded at $1.9393 on ICE Futures U.S. in New York at 11:02 a.m. in Singapore today.

‘Increasing Prosperity’

“I’m optimistic on prices because we have this structural supply-demand imbalance,” said Parihar, who’s set to speak at an industry conference in Dubai today. “We have increasing prosperity and GDP growth in China and India. The demand prospects look very optimistic.”

Global cotton output in the year to July 31 will be 0.3 percent smaller than forecast in February because of lower output in China and India, the U.S. Department of Agriculture said on March 10.

Production will total 114.95 million, 218-kilogram bales in the year, compared with 115.25 million bales forecast a month earlier. Global use will be 116.61 million bales, up from last month’s projection of 116.55 million, the USDA said that day.

“The problem is while demand is growing, production is subject to very sharp fluctuations,” said Parihar.

The rally may prompt farmers to boost planting. Output in India, the second-largest grower, may gain to a record 40 million bales in 2011-2012, said Parth Mehta, joint managing director of Bhadresh Trading Corp., the nation’s top cotton exporter. A bale in India weighs 375 pounds, or 170 kilograms.

Global production may rise 11 percent to a record 27.6 million tons in the year from Aug. 1 as higher prices prompt farmers to increase output, the International Cotton Advisory Committeesaid in a report on March 1.

(Source: http://www.bloomberg.com/news/2011-03-15/cotton-demand-outlook-is-very-optimistic-on-china-india-olam-predicts.html)

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