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Cotton Price Acceleration Seen

With Chinese textile plants expected to exhaust about 40% of worldwide cotton consumption during the 2006/07 cotton year, and consumption still exceeding production around the globe, prices for the basic raw material of textiles products are forecast to edge up about 1.8% this year, before jumping up at a double-digit pace during the 2007/08 cotton year.

In a monthly update of its annual cotton supply, demand and pricing forecast, the International Cotton Advisory Council (ICAC) projects cotton prices during the current cotton year will average about $0.57 a pound, up slightly less than 2% from last year's $0.56 a pound. But with demand for cotton accelerating at a faster pace than it can be cultivated and harvested, prices are expected to race up by 10.5% next year to $0.63 a pound, the cotton cartel is forecasting.

Even though production is rising as growers devote more acreage to the product to capitalize on rising prices, demand is growing at an even faster pace.

This year, production is forecast to rise by 1.3%, to 25.0 million tons from 24.7 million last year, as growers try to keep pace. But demand, driven in large part by China, is growing more than twice as fast, by a forecast 3.2% this year, to 25.6 million tons from 24.8 million tons a year ago, said the consortium of cotton growers. Consumption by Chinese textile plants is forecast at 10.2 million tons, accounting for a record 40% of all the cotton used in the world.

"Production is forecast to reach record levels in both China, 6.5 million tons, and India, 4.6 million tons," said the cotton growers. "However, production is expected to decrease in the United States, to 4.5 million tons, and Pakistan, to 2.0 million tons."

Even as its plants continue to suck up cotton, China is something of a question mark, said cotton growers. "There is significant uncertainty regarding projected 2006/07 Chinese imports due to lack of information on Chinese consumption and the intention of buying or selling cotton," from the China National Cotton Reserves Corporation, which holds its hand on the spigot, controlling the flow of cotton in and out of China.

World Cotton Supply and Pricing Forecast
(in millions, except for dollars)

2005/06 (ACTUAL) 2006/07 (PROJ.) 2007/08 (PROJ.)
Source: International Cotton Advisory Council (ICAC)
Production 24.7 25.0 25.5
Consumption 24.8 25.6 26.1
Cotlook A Price Index $0.56 $0.57 $0.63


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