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Cotton Forecast: Partly Sunny

Cotton ForecastNEW YORK - With the harvest season under way in the Northern Hemisphere, estimates suggest a relatively predictable cotton supply, but demand uncertainty remains a risk for buyers in the near term.
     The market appears to have settled in the $1 per pound range, but the heat that scorched the earth in the southern U.S., most especially in Texas, and more flooding in Pakistan gave rise to concerns of another shortage and ensuing market mayhem. However, the USDA's recent World Agricultural Supply and Demand Estimate for 2011/2012 world cotton forecasts found higher beginning stocks offset by lower production. USDA expects world consumption and trade to be reduced marginally, with world ending stocks virtually unchanged.
     The question for global markets is where will the kind of demand emerge that puts the 2008 recession safely in the rearview mirror.
     Cotton Inc. earlier this month pointed to key factors indicating lower prices, including the possibility of another Euro Zone recession, sluggish U.S. growth, and slowing Chinese economic activity. The possibility of global demand weakness, this crop year's 9.6 million bale production surplus, seasonal harvest influences and the introduction of fresh supplies should keep downward pressure on prices for the near term.
     However, the Chinese reserve program is helping to keep a floor on prices. The possibility of lower cotton acreage as a result of competing crops - such as corn and soybeans - may counteract the downward pressure going forward, Cotton Inc.'s Nov. 10 report concluded.
     Prices for Extra Long Staple cottons such as Supima, Egyptian, et al, remain high relative to historical averages.
     "Supima prices have been strong since the fall of 2010 ... Egyptian cotton prices are probably a little lower," said Jesse Curlee, president of Supima. "Prices for Supima have remained at the current range for some time now, even though demand hJESSE CURLEE, Supimaas been slow in recent months. This is because there was so much demand at the beginning of 2011."
     This overhang of demand gave producers and merchants little incentive to consider lower prices at the moment, he added.
     John Robinson, professor and extension economist-cotton marketing at Texas A&M's Department of Agricultural Economics doesn't see a repeat of the 2010/2011 spike.
     "What you had last year was a perfect storm of events, with the main driver being that around October 2010, people began to realize that the Chinese did not have the stocks people thought they had," Robinson said. "the Pakistani floods, the Indian export ban, and uncertainty in the U.S. about how the Fed's quantitative easing program would affect the U.S. dollar and the ingredients were there for the unprecedented price increase," he said.
     Robinson, who also publishes the weekly Cotton Marketing Planner online, points out that no such perfect storm appears on the horizon going forward.
     "We have the likelihood of increased supply and iffy demand, so barring any major surprises, we should see prices range-bound around $1 and possibly lower," he said. A trend report from China's Sub-Council of Textiles Industry helps support this view. The report forecasts lower Chinese cotton consumption and a moderate expansion of planting areas. Cotton imports are expected to stabilize or reduce, leading to lower prices.
     Stay tuned.

World Cotton Balance Sheet

(MILLIONS OF 480 LB BALES)

 

2007/08

2008/09

2009/10

2010/11

2011/12 (OCT.)

2011/12 (NOV.)

Beginning Stocks

62.4

60.9

60.8

44.2

44.9

45.2

Production

119.7

107.3

101.6

115.3

124.2

123.9

Supply

182.2

168.2

162.4

159.5

169.1

169.1

Consumption

123.6

110.3

119.1

114.3

114.4

114.3

Ending Stocks

60.9

60.8

44.2

45.2

54.8

55.0

Stocks/Use Ratio

49.3%

55.1%

37.1%

39.5%

47.9%

48.1%

      

Source: USDA

World Cotton Production

(MILLIONS OF 480 LB BALES)

 

2007/08

2008/09

2009/10

2010/11

2011/12 (OCT.)

2011/12 (NOV.)

China

37.0

36.7

32.0

30.5

33.5

33.5

India

24.0

22.6

23.0

25.4

27.5

27.5

United States

19.2

12.8

12.2

18.1

16.6

16.3

Pakistan

8.6

8.7

9.6

8.8

10.0

10.0

Brazil

7.4

5.5

5.5

9.0

9.0

9.0

Australia

0.6

1.5

1.8

4.2

5.0

5.0

Uzbekistan

5.4

4.6

3.9

4.1

4.2

4.2

Turkey

3.1

1.9

1.8

2.1

2.9

3.1

African Franc Zone

2.3

2.2

2.1

2.1

1.5

1.5

EU-27

1.7

1.2

1.1

1.1

1.7

1.6

Turkmenistan

1.4

1.6

1.5

1.8

1.4

1.4

Greece

1.6

1.2

0.9

0.9

1.4

1.4

Argentina

0.7

0.6

1.0

1.3

1.4

1.2

Mexico

0.6

0.6

0.4

0.7

1.2

1.2

Burkina

0.7

0.9

0.7

0.7

0.7

0.7

Rest of World

7.8

6.8

5.9

6.1

7.7

7.8

World Total

119.7

107.3

101.6

115.3

124.2

123.9

      

Source: USDA

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