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Cotton Crunch Looms

After rising an average of 3.5% so far this year, cotton prices are set to rise sharply higher next year, by more than 12%, to an average $0.65 a pound, said worldwide cotton growers in an update of their annual supply, demand and pricing forecast.

Prices for the upcoming cotton growing year are accelerating unexpectedly: only two months ago they were forecast to climb at a far more modest pace of 6.4%, said the International Cotton Advisory Council (ICAC), a worldwide consortium of producers.

The ICAC pricing index "has increased significantly since mid-May 2007," said growers in their July report. "Domestic Chinese prices also increased in June due to tighter domestic supplies and increased domestic demand."

Also: "A continued increase in Chinese domestic prices could result in sales of reserve stocks by the China National Cotton Reserve Corporation and/or increased Chinese imports," which could add even more pressure.

World cotton production is forecast to come in slightly lower next year, even as demand keeps increasing. Cotton production is forecast to slip next year by 1.6% to 25.3 million tons, down from about 25.7 million tons during the current cotton season. Demand, on the other hand, is forecast to climb by 650,000 tons, or 2.7% next year, to 26.9 million tons from 26.2 million tons this year.

"Asia is expected to consume 4% more cotton in 2007/08, whereas the rest of the world is expected to consume 4% less," said the cotton cartel.

Going forward, said the growers, "World cotton trade is expected to rebound in 2007/08 to over nine million tons, up 11% from 2006/07, driven by projected higher Chinese imports. U.S. exports are expected to jump by almost one million tons in 2007/08, to 3.7 million tons."

With so much demand for the basic raw material of apparel and home fashions, "World cotton ending stocks are forecast to decrease by 13% in 2007/08, to 10.6 million tons," further reducing supplies.

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 25.0 25.7 25.3
Consumption 24.9 26.2 26.9
Cotlook A Price Index $0.56 $0.58 $0.65


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