cotton futures news

cotton futures news

May 1st, 2015

West Africa’s cotton sector faces a “crisis” which could prompt “major shake-ups” within the region’s industry, Ecobank said, citing the knock-on effects of weak prices of the fibre.

Cash-strapped governments in the major West African cotton growing area, which includes Benin, Burkina Faso and Senegal, face a “daunting task” in setting minimum prices of the fibre for 2015-16, the bank said.

Passing on the 20% drop in prices forecast for cotton prices in 2015-16 to less than 70 cents a pound, as measured by the Cotlook A index, would prompt producers to switch to other crops, such as sesame or soybeans – an outcome “that governments want to prevent at all costs”.

“Cotton acts as a guarantee for rural food security… Cotton is simply too important for West African governments to allow a collapse in production.”

Cotton Futures: Revenue squeeze

However, failure to cut the guaranteed price could “prove counter-productive”, in compromising governments’ ability to fund fertilizer subsidies to growers “which have played a critical role in boosting output”.

Burkina Faso, the region’s top cotton producer, looks particularly vulnerable on this score given its growers’ adoption of expensive, genetically-modified seed and use of “significant volumes” of fertilizer, the price of which has been raised by the strong dollar.

A plan by Mal to spend 60bn-70bn CFA francs on subsidising inputs for farmers “could also be derailed”.

“The squeeze on revenues from lower international prices, the strong dollar and high farmgate prices, could scupper these plans.”

Cotton Futures: “Major shake-ups”

The sector’s worsening finances could have large implications for the region’s state-run cotton groups.

“With the outlook for international cotton prices remaining weak, a crisis is looming for West Africa’s cotton companies – one which could prompt major shake-ups in the sector,” Ecobank said.

In Burkina Faso, Sofitex, which is 95% state owned, “could seek new investors”.

Mali’s CDMT “might be pushed to relaunch its privatisation process”, which it postponed indefinitely in 2012.

Cotton Market: Record year

The sector’s looming crunch follows a record crop on 2014-15 in the region, with “growth in Mali, Ivory Coast and Benin offsetting a slight drop in Burkina Faso”.

A US Department of Agriculture attache report released last week estimate cotton production in Burkina Faso, Chad, Mali, Ivory Coast, and Senegal at 3.5m bales, up 14% on the previous season.

The report pegged 2015-16 production in these countries at 3.7m bales.

- By Agrimoney.com