The International Cotton Advisory Committee underlined downbeat expectations for cotton prices as it said that low values were behind a forecast for lower world production next year – with China’s output to hit a 12-year low. The intergovernmental group warned that low prices are expected to persist for the rest of the 2014-15 – as it cut its forecast for the season-average value, as measured by the Cotlook A index, by 4 cents to 68 cents a pound. The Cotlook A, which on Monday fell 0.25 cents to 67.05 cents a pound, typically trades at a premium to futures. The low prices – the weakest in six years – will, in making cotton less appealing to growers, cut world plantings for 2015-16 by 6% to 31.6m hectares. Cotton is likely to be much less attractive to plant due to falling cotton prices while prices for competing crops such as corn and soybeans have recovered from price downturns last September and October, the committee said.
The comments came as the committee outlined some of the reasoning behind estimates released a month ago for a 1.72m-tonne drop in world cotton production next season – also the biggest drop since 2008-09, when low values deterred plantings. Chinese output will slump by some 700,000 tonnes to 5.7m tonnes (26.2m bales), the lowest since 2003-04. Area is projected to fall for the fourth consecutive season by 10% to 3.8m hectares, the ICAC said. While the committee did not detail the reasoning behind this estimate, it follows subsidy reforms which have prompted a particularly steep slide in China’s cotton price – which plunged by nearly 60% to 13,605 yuan a tonne in the last nine months of 2014, according to the China Cotton Association’s price index.
China’s government is, thanks to the price fall, expected to cut below 19,800 yuan a tonne its target price for cotton in Xinjiang, the top producing province, the state-run Xinhua news agency reported. The drop in China’s production will, for a second successive season, keep at second place in the world cotton production table behind India, whose own output will fall by some 300,000 tonnes to 6.5m tonnes. The ICAC again highlighted a minimum support price which, while raised this season in India, is still considered by some farmers too low compared to production costs.
Cotton area in the US, meanwhile, the top cotton exporting country, will drop by 10% to 3.6m hectares (8.9m acres) as low cotton prices relative to competing crops may make farmers less enthusiastic to plant cotton. US production will fall by 7% to 3.3m tonnes (15.2m bales).
Nonetheless, production will in 2015-16 fall only narrowly behind consumption, whose growth will be constrained to 2%, taking it to 24.69m tonnes.
Prices of rival fibre polyester have fallen much faster than cotton prices for much of the season, eroding the price attractiveness of cotton, the ICAC said. Consumption in China, the top cotton-using country, will stick at around 8m tonnes – implying a 2.3m-tonne production deficit.
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