news, features, articles and disease information for the crop industry


Cotton Incorporated: Market Fundamentals and Price Outlook

Cotton Incorporated: Market Fundamentals and Price Outlook

12 February 2014

GLOBAL - Cotton prices outside of China increased last month, with both the New York Nearby (March contract) and the A Index reaching their highest levels in five-months, reports Cotton Incorporated.

  • Prices for the New York March futures contract climbed over 85 cents/lb in January. Trading was volatile at times, with values dropping more than two cents/lb on January 27th. In more recent activity, prices recovered and have remained near 86 cents/lb.
  • The New York December contract, which reflects expectations for the 2014/15 crop year, has been holding to levels about 10 cents/lb below those for the March contract.
  • The A Index increased from values near 89 cents/lb in early January to 94 cents/lb late in the month. Current values have ranged between 91 and 94 cents/lb.
  • After the New Year holiday, the CC Index resumed trading at values it has consistently held for the past several months (146 cents/lb or 19,440 RMB/ton).
  • After rising throughout the first half of January, spot rates for India's Shankar-6 variety have been stable in international terms at values near 88 cents/lb. In domestic terms, prices continued to rise, climbing from values near 42,000 INR/candy to 44,700 INR/candy.
  • After increasing in late December, Pakistani spot rates have been stable at levels near 81 cents/lb (6,950 PRK/maund).

Supply, Demand & Trade

Cotton bollThe largest revision to this month's USDA report was a 1.1 million bale decrease to the world production forecast (from 117.8 million to 116.7 million). The decline in the global harvest estimate was primarily a result of diminished expectations for China (-1.0 million bales, from 33.0 million to 32.0 million), Australia (-400,000 bales, from 4.5 million to 4.1 million), and Pakistan (-200,000 bales, from 9.7 million to 9.5 million) which were only partially offset by higher forecasts for Argentina (+175,000 bales, from 1.1 million to 1.3 million) and Greece (+150,000 bales, from 1.2 million to 1.3 million).

The global consumption figure was essentially unchanged, decreasing only 15,000 bales (to 109.5 million bales), with the only country-level change being a 15,000 bale decrease in the estimate for Ugandan mill-use.

Few revisions were made to trade figures. The Australian (from 4.0 million to 3.9 million) and Brazilian (from 2.5 million to 2.4 million) export forecasts declined 100,000 bales each while the estimate for Greece increased 100,000 bales (from 1.1 million to 1.2 million).

Price Outlook

The separation between prices for the March and December New York future contracts can be explained by differences in the supply and demand outlook for the 2013/14 and 2014/15 crop years. In the current market,there have been reports of tightness in exportable supplies. Export sales data published by the USDA indicate that the total U.S. commitment (sales contracted for 2013/14 delivery that have not been shipped plus the volume that has already been shipped) is 13% lower than one year ago (9.2 million bales in 2013/14, 10.6 million in 2012/13).

With the U.S. crop expected to be 26% smaller (13.1 million bales in 2013/14, 17.3 million in 2012/13), the decline in the harvest is larger than the decline in export sales. Correspondingly, U.S. ending stocks are forecast to decrease; the USDA expects a 23% decline (3.0 million in 2013/14, 3.9 million in 2012/13). Since the U.S. is the world's largest exporter, and since strong U.S. export sales in recent weeks suggest ending stocks could fall to levels below the current USDA forecast, there has been upward pressure on global cotton prices.

It is notable where export sales have been made. U.S. commitments to Southeast Asia are 40% higher crop-year-to-date, those to Turkey are 24% higher, and those to Latin America are 9% higher. Sales to China, which traditionally represents about 40% of U.S. exports, are 50% lower. The slow pace of sales to China could be due to limited import quota being released by the government. With exportable supplies tight without China being an aggressive buyer, the amount of quota that may eventually be released to mills would impact U.S. supplies, and therefore world price direction, until the 2014/15 crop becomes available.

The 10 cents/lb discount in prices for the December New York futures contract relative to those for March suggests expectations that exportable supplies will increase in the coming crop year. The National Cotton Council recently estimated there will be an 8% increase in U.S. planted cotton acreage for 2014/15 (11.3 million acres versus 10.4 million in 2013/14). Improved soil moisture in Texas, which has suffered drought conditions for the last three crop years, could amplify the effects of increased acreage on production and lead to an even greater supply of cotton available to the world market.

Import demand from China could remain a significant source of uncertainty in 2014/15, although any announcement regarding reforms to Chinese cotton policy may provide some insight into the government's intentions regarding trade. Previous comments made by Chinese officials, which indicated that continued accumulation of reserves was unsustainable, suggest lower levels of Chinese imports in coming crop years. Lower Chinese demand, coupled with increases in stocks outside of China, could lead to lower prices in 2014/15 and beyond.

Our Sponsors