Low consumption drops cotton cost

Don Hogsett, July 12, 2004

Hurt by a rise in cotton prices last year, and subsequent inroads made by polyester and other manmade fibers, worldwide cotton production is on target to easily surpass consumption this year, putting downward pressure on prices for the current cotton year and providing some relief to American home fashions suppliers.

Cotton prices this year are projected to average about 62 cents per pound, down about 11 percent from an average of 70 cents last year, the International Cotton Advisory Council (ICAC) reported in the most recent monthly update of its annual forecast. Even more relief could be in sight for the 2005/06 cotton year, when prices are expected to fall another 10 percent, to about 56 cents per pound.

During June, the international cotton cartel reported, cotton prices fell to a level of 61 cents per pound, down about 24 percent from a season high of 80 cents per pound recorded in early November 2003.

Putting substantial downward pressure on prices is the immutable law of supply and demand — as cotton production is forecast to jump more than 9 percent this year, to 22.2 million tons from 20.4 tons last year, while consumption barely inches ahead. Worldwide use of cotton at the mill level is forecast to limp ahead just 1.3 percent, to 21.4 million tons from 21.1 million a year ago, said ICAC.

The ICAC said, "World cotton area is estimated at 34.5 million hectares in 2004/05, up 8 percent from the previous season, and the highest since 1995/96. Weather conditions have been favorable for the 2004/05 crops in the northern hemisphere," generating a near-record yield. About 65 percent of this year's increase in production "is expected to occur in China," said the group.

On the other side of the equation, said ICAC, "after increasing by 2.7 million tons between 1999 and 2003, world cotton consumption is stagnating" this year due to price increases in prior years.

(in millions of tons, except for cotton prices)

2003/04 (actual) 2004/05 (proj.) 2005/06 (proj.)
Production 20.37 22.22 22.61
Consumption 21.14 21.42 21.70
Cotlook A Price Index $0.70 $0.62 $0.56
Source: International Cotton Advisory Council (ICAC)

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