World cotton stocks will fall in 2015-16 for the first time in six years, helped by a drop in Chinese production to a 12-year low – although the decline will not be significiant enough to revive prices of the fibre.
The US Department of Agriculture, in its first forecasts for 2015-16, forecast world cotton output falling 5.4% to 133.0m bales, sapped by lower, or flat, harvests “in all major” producing countries.
US output will fall particularly far, by 2.1m bales to 14.1m bales, a reflection of lower sowings, “due mainly to relative prices and net returns that favour alternative crops”, the USDA said.
Chinese output will fall 2.0m bales to 28.0m bales, the lowest since 2003-04, a reflection of a revised subsidy regime that favours farmers in Xinjiang, the top growing province, over producers in other areas.
China, which was the top cotton producer from 1981-82 before being overtaken by India this season, will remain in second place, with Indian output seen falling a more modest 500,000 bales to 30.0m bales.
Meanwhile, consumption will grow at an “unusually high rate” of 4.2% in 2015-16, lifted by the knock-on effects of stronger world economic growth, at a time of relatively low cotton prices.
Cotton demand has a strong correlation with global economic growth, which is itself “expected to accelerate slightly in both calendar 2015 and 2016”, the USDA said.
At 116.0m bales, consumption will exceed production by 3.0m bales – meaning the first reduction in world inventories in six years.
The decline will be particularly strong in China, which thanks to its previous subsidy policy built huge stocks of cotton, forecast at the equivalent of 1.8 years’ consumption as of the end of 2014-15.
China’s stocks will fall to 61.9m bales at the end of next season, equivalent to 1.65 years’ supply.
‘Stocks will remain excessive’
And with world inventories seen ending next season at 106.8m bales, equivalent to some 11 months’ needs, “ending stocks will remain excessive”, the USDA said.
“Accordingly, the Cotlook A index,” a much-watched indicator of physical prices, “is projected at 68 cents per pound, the same as the 2014-15 estimate, which is a six-year low”, the USDA said.
Its forecast for the Cotlook A this season is exactly in line with that of the International Cotton Advisory Committee.
While the ICAC has yet to make an estimate for the index in 2015-16, the committee last month warned of the likelihood of prices saying low.
“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,” the ICAC said.
The Cotlook A averaged 99 cents a pound in 2013-14.