Cotton Price Outlook Harsh

Don Hogsett, August 5, 2006

With the demand for cotton surging even as production dries up around the world, and as China continues to absorb a disproportionate share, cotton prices are forecast to rise almost 8% this year, before jumping up by more than 14% next year.

In a monthly update of its annual supply, demand and pricing forecast, the International Cotton Advisory Council (ICAC), a consortium of world cotton growers, said demand during the current cotton year is forecast to rise by 7.0%, to an estimated 25.0 million tons from 23.4 million a year ago. But the big hitch is that cotton production around the world is expected to drop by 5.7%, creating a gap between supply and demand of almost 13% when compared with last year.

More of the same is expected next year, with demand up by an additional 3.6% — but production dipping a more modest 0.4%, reflecting a slowing of the separation of supply and demand — when compared with the current cotton year.

China and its textile mills remain a complicating factor, and will continue to drive world mill use, with Chinese consumption expected to reach a record 10.5 million tons next year, up about 6.1%, or 600,000 tons from last year. At that rate, Chinese textile plants will be using roughly 43% or the world's available supply of cotton. Chinese imports, said the cotton cartel, are expected to remain at a record 4.2 million tons next year.

Next year India is expected to become the third largest cotton exporting nation, behind the United States and Uzbekistan, the cotton growers said. Indian cotton exports are forecast at over 800,000 tons next year.

World cotton supply and pricing forecast
in millions of tons, except for cotton prices

2004/05 (ACTUAL) 2004/05 (PROJECTED) 2006/07 (PROJECTED)
Source: International Cotton Advisory Council (ICAC)
Production 26.30 24.8 24.7
Consumption 23.37 25.0 25.9
Ending Stocks 11.08 10.9 9.8
Cotlook A Price Index 0.52 0.56 0.64

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