World cotton stocks expected to post record high


GLOBAL COTTON stocks are expected to hit a record high in the 2011/12 season on the back of rampant restocking by Beijing’s strategic reserve and due to a drop in demand, according to the US Department of Agriculture’s (USDA) monthly supply/demand report.

World ending stocks are expected to rise to 66.07 million bales (480 pounds) for the marketing season to July 31, USDA said on Tuesday, raising its forecast by 4 million bales since March.

That would be a 30% rise from 2010/11 and over 40% since the 2009/10 season.

The record high would come after the largest buying spree in over a decade by China, where 35% of global inventory is now held in a strategic reserve.

That would be the highest portion of total ending stocks for China since 1989/99, according to USDA data.

Beijing’s strategic inventory has more than doubled to some 23.08 million since August last year when the 2011/12 marketing season started, according to USDA data.

The restocking, which has pushed Chinese imports to record highs of over 20 million bales, started in earnest at the start of the year as Beijing looked to take advantage of prices below $1 per pound, traders have said.

Buying from the Far East — 3.08 million bales — made up the bulk of the jump of 4 million bales since the USDA’s last estimate.

Concerns have mounted ahead of the end of the marketing season on July 31 as the authorities have only released a minimal amount of material.

This could limit availability on the open market, the USDA cautioned on Tuesday.

“The government of China’s accumulation of cotton in the national reserve is constraining free supplies, thereby boosting its imports while limiting consumption,” the USDA said.

Other headline USDA forecasts were bearish, with world demand expected to fall by 500,000 bales to 123.14 million bales due to cuts in India, the United States and others partially offsetting increases in Pakistan and Sudan.

Even with consumption expected to shrink, the removal of such a large portion of global stock could distort the supply-and-demand balance.

“That cotton is not available to anybody else,” said Sharon Johnson, a senior cotton analyst with commodities brokerage Penson Futures in Atlanta. “That’s in a lockbox. Nobody is getting to it unless Beijing deems otherwise.”

In India, a ban on cotton exports has also served to bloat its stockpiles.