cotton futures news

cotton futures news

August 2nd, 2016

The International Cotton Advisory Committee joined the round of deep cuts to estimates for world cotton stocks, citing improved expectations for Chinese demand, following well-received auction sales.

The intergovernmental group cut by 840,000 tonnes, to a four-year low of 18.63m tonnes, its forecast for world cotton inventories at the close of 2016-17, which began on Monday.

The revision is the latest in a series of downgrades by leading commentators on stocks expectations, with the US Department of Agriculture last month cutting its forecast for carryout inventories in the new season by 750,000 tonnes to 19.88m tonnes.

Cotlook has raised from 966,000 tonnes to 1.3m tonnes its forecast for the world cotton production deficit in 2016-17.

Cotton Futures: Demand upgrades

The ICAC downgrade reflected in part a weaker estimate for output last season – now seen tumbling by 18% to 21.3m tonnes, thanks largely to a 26% drop to 4.8m tonnes in Chinese production, with the harvest in India seen down 11% at 5.7m tonnes.

However, the stocks revision also reflected improved ideas on demand, now seen showing a small increase in 2016-17, of 80,000 tonnes to 23.9m tonnes.

Use in China, the top consuming country, was estimated at 7.1m tonnes.

While a decline of 200,000 tonnes year on year, “due to high cotton prices, lower polyester prices and limited imports”, the figure was an upgrade of 300,000 tonnes from the ICAC’s estimate last month.

Cotton Futures: ‘Strong demand’

Indeed, the committee termed “strong” overall Chinese cotton demand, flagging the near-100% take-up of fibre auctioned off from huge state reserves built up thanks to a former subsidy scheme which offered farmers generous guaranteed prices.

“Demand for cotton from the Chinese government’s reserve has been strong since auctions started in May,” the ICAC said.

“Total sales through the end of July are around 1.6m tonnes reducing China’s national reserve to 9.4m tonnes.”

Overall Chinese stocks are believed to have closed 2015-16 at 11.3m tonnes – well below the figure of 12.0m tonnes the ICAC had forecast at the start of the calendar year.

Cotton Futures: Price outlook

The ICAC’s revisions imply world stocks closing 2016-17 at the equivalent of 78% of consumption – well below the 83% suggested by last month’s estimates, and implying higher price expectations.

Tighter stocks of a commodity typically lead to higher prices, as buyers are forced to pay up to secure supplies.

However, the committee kept at 72 cents a pound its forecast for average world cotton prices in 2016-17, as measured by the Cotlook A index.

That would represent a rise of 2 cents a pound on last season’s average price, but is below the 82.85 cents a pound at which the Cotlook A stood on Monday.

- Agrimoney.