International cotton prices for July delivery fell to a low of 77.16 cents a pound on the ICE Futures US exchange on May 10, after a US government report forecast record world ending stocks for the second consecutive season.
Prices rebounded to around 79 cents for both July and October deliveries of the fiber – putting them at around one-third of the cotton price peak of $2.27 per pound that was reached in March last year.
The market reeled after data from the US Department of Agriculture (USDA) suggested ending stocks would rise 10% to 73.75m bales in the 2012/13 season, which begins on August 1.
The projection is based on an expected 6.7m bale surplus of production over consumption. World production is seen at 5% lower than last season at 116.7m bales, with reductions predicted for nearly all major cotton-producing countries except the US.
World consumption is expected to rise just 3.3% amid concerns of slowing global economic growth, although lower cotton prices are making the fiber more competitive with polyester. World trade is expected to fall 10%, as a sharp drop in imports by China are partially offset by increases for other countries where cotton demand is projected to rise.
While China’s national reserve stocks are currently estimated at nearly 20.0m bales, the USDA believes cotton imports into the country may fall 35% from the current season to 14m bales as some of the reserve stocks are released.
That said, China’s total ending stocks are expected to grow 14% to 28m bales, representing 38% of total world stocks.
In the US, production is expected to rise 9% based on prospective plantings and average yields, despite a continued drought on the Texas High Plains. Domestic mill use is likely to rise by 100,000 bales to 3.5m bales in 2012/13 – with exports up 5% to 12.0m due to the larger available supplies. Ending stocks are also raised to 4.9m bales.
Inter-governmental group the International Cotton Advisory Council earlier this month said the projected accumulation of cotton stocks in China will weigh on international cotton prices in 2012/13 – but the extent of this downward pressure will largely depend on how the Chinese national reserve is handled.