ICAC: Cotton Price Gains Attractiveness

WASHINGTON — April 1, 2015 — Although the price of cotton is less attractive than its competing crops, such as wheat, maize, soy, rice and sugar, compared with a year ago, its position has improved in the last few months. The record volume of cotton stocks has put downward pressure on international cotton prices, which have averaged around 68-70 cents/lb for much of the season. Like cotton, prices of competing crops fell in August and September.

However, prices for wheat, maize, and soybean recovered in late autumn and winter, while cotton continued to fall, making cotton less attractive. Then, in January and February 2015, prices for wheat, maize, and soybean all declined while cotton prices have held steady. The recent gain in the price attractiveness of cotton may mitigate the loss in area to competing crops. World cotton area is forecast to decrease 7% to 31.3 million hectares in 2015/16, and world production is projected down 9% to 24 million tons.

World production in 2014/15 is estimated at 26.4 million tons, up 1% from the previous season, while world average yield decreased 2% to 791 kg/ha. In India, area grew 5% to 12.3 million hectares in 2014/15, which is the largest area planted with cotton on record. However, erratic monsoon weather last summer caused India’s average yield to fall 5% to 551 kg/ha. As a result, production reached 6.7 million tons, about 20,000 tons fewer than in 203/14. Harvested area in the United States grew 29% to 3.9 million hectares, and production increased 26% to 3.5 million tons. In contrast, the area in China, Pakistan and Brazil decreased
 n 2014/15. After reaching 5.5 million hectares in 2011/12, the area under cotton in China has dropped in each of the subsequent seasons, despite high domestic prices, and is estimated at 4.3 million hectares in 2014/15, down 8% from 2013/14. Scarcity of labor, rising production costs, and greater profitability from other crops are among the factors that have discouraged farmers from planting cotton in China. China’s cotton production is estimated at 6.4 million tons in 2014/15. Although planted area in Pakistan increased slightly from 2013/14 to 2.9 million hectares, flooding in the autumn caused a loss of around 86,000 hectares so that harvested area decreased 3% to 2.8 million hectares. However, greatly improved yield is likely to push production to 2.3 million tons. Farmers in Brazil were discouraged by the sudden drop in international prices in the months before planting, and area in Brazil fell 13% to 976,000 hectares. Production is projected down 11% to just over 1.5 million tons.

After falling 1% in 2013/14, world consumption is projected to expand 3% to 24.1 million tons in 2014/15 with growth in Asia dominating. China’s consumption is expected to recover 5% to 7.9 million tons after several seasons of decline. India, the world’s second largest consumer is projected to increase consumption by 4% to 5.2 million tons while consumption in Pakistan is forecast to grow 2% to 2.3 million tons, making it the third largest consumer in the world. In 2015/16, consumption is expected to grow modestly by 2% to 24.6 million tons. World imports are forecast down 15% to 7.4 million tons in 2014/15 with imports by the world’s largest importer, China, expected to drop 50% to 1.5 million tons due to the greater availability of domestic cotton in 2014/15 and the restriction on additional import quota in 2015.

Although consumption is recovering in 2014/15, a production surplus of 2.3 million tons is likely, resulting in another year of rising ending stocks. In 2014/15, world ending cotton stocks are expected to rise by 12% to 21.8 million tons, which represents 90% of world consumption this season. However, in 2015/16, ending stocks may decrease by 3% to 21.2 million tons.

World Cotton Supply And Distribution
                                  2013-14  2014-15   2015-16  2013-14        2014-15         2015-16

from previous
Production 26.27 26.43 23.99 -0.01 0.07 -0.42
Consumption 23.49 24.14 24.55 -0.01 -0.08 -0.10
Imports 8.74 7.39 7.68 0.00 -0.01 -0.13
Exports 8.87 7.39 7.68 0.01 -0.01 -0.13
Ending Stocks 19.48 21.77 21.21 -0.05 0.11 -0.20
Cotlook A Index 91 68* 61**

*The price projection for 2014/15 is based on the ending stocks/mill use ratio in the world-less-China in 2012/13 (estimate), in 2013/14 (estimate) and 2014/15 (projection), on the ratio of Chinese net imports to world imports in 2013/14 (estimate) and 2014/15 (projection). The price projection is the midpoint of the 95% confidence interval: 63 cts/lb to 74 cts/lb.
**The price projection for 2015/16 is based on the ending stocks to mill use ratio in the world-less-China in 2013/14 (estimate), 2014/15 (projection) and 2015/16 (projection), on the ratio of Chinese net imports to world imports in 2015/16 (projection), and on the price projection for 2014/15. The price forecast for 2015/16 is the mid-point of the 95% confidence interval: 49 cts/lb. to 75 cts/lb.