Global Cotton markets are drawing support from new season crop concerns and a lack of fund selling, but as the harvests progress, prices are expected to fall on increased supply and economic concerns. In Rabobank’s view, the eroding risks associated with the new crop production together with only modest demand growth forecast will send prices in NY down in the Q4.
Cotton prices still need to compete with other products for land so downside will likely be moderated. The speculator net long position in the futures market may fall if bearish outlook is realised or if global economic growth slows. This also is expected to weigh on values.
The 2011/12 Northern Hemisphere cotton harvests are underway but prices have not yet come under pressure as risks remain. In the US, the cotton harvest was 11% complete by 18 September, a normal pace. However, boll opening is at 69%, ahead of the 5‐year average of 54% and a possible indication of plant stress.
Crop condition was graded at 27% good or excellent, down significantly from 58% last season. The size of the US crop, and thus the export availability, remains a major variable in the market. In Pakistan weather conditions have likely reduced the season’s crop and have also been a bullish factor for prices in the short term.
The Southern Hemisphere will begin planting Cotton in the coming weeks and the need to encourage farmers to sow has likely been a supporting factor for market prices. Australia, Brazil and Argentina increased plantings 61% from 2009/10 to 20010/11 due to high prices. The supply from the three countries is important as US export availability will be lower than initially forecast.
While Australia is expected to increase area again in 2011/12, growers in South America may not expand as lower relative prices promote soybean or Corn planting and as planting delays reduce the opportunity to plant cotton as a second crop. Despite this dynamic, a global record crop is still forecast, and this is bearish for current values.
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