New York Cotton Market already crossed highest ever psychological barrier of two dollars; what next?

As per periodical report of Pakistan Cotton Ginners' Association, total seed-cotton arrivals up to 15th February, 2011 have reached equivalent to11.381 million local-weight bales which is 9.8% lower than corresponding arrivals of last season.
Total unsold stocks have been reported at 505,941 bales against 611,819 bales same period last season. Last season, 132 ginneries operated in the first fortnight of February month but this season 336 ginning factories operated which means that still seed-cotton arrivals are in progress. Hopefully, this season's crop size may be around 11.8 million bales - 7.08% short from last season and total cotton imports may be around 2,0 million 160-Kg equivalent bales almost equal to cotton imports of last season. Thus, this season's mill cotton consumption may be around 13.5 million bales but actual season's cotton consumption figures are known sometime about 10 months late, thanks to the Textile Commissioner's office which collects these figures.
During this season, our cotton exports may be around 600,000 local weight bales. I repeat that motivated by the ever record high cotton rates, cotton growers in almost all cotton producing countries would try to maximise cotton area and would be quite aggressive in cotton sowing next season. Here, in Pakistan cotton area may be increased by 10-12% to 3.4 million hectares. Increase in cotton area in USA is expected around over 14% to produce a bumper cotton crop of over 20 million 480-lb bales while China is expected to increase its cotton area by 9.8% despite pressure on lands for producing food-grains.
Below given is the detail of 5 years (2006/7-2010/11) cotton production of 15-top countries which may be of some information and interest for the readers. In 2010-11, the world is producing cotton crop of 115.3 million 480-lb bales against 101.5 million bales produced last year. This season, the world produced 13.8 million bales more than the crop of last season but cotton prices increased by about 150% from the level of last July month. World cotton consumption in 2010-11 is estimated around 116.6 million bales while last season it was 118.5 million bales- this season, the decrease in consumption over last season is of 1.9 million bales.
The present sky-rocketing increase in prices cannot be squarely attributed to demand and supply position but mainly to price spiral world wide. Beside this, the market speculation flared up prices. When there has been spectacular increase in the world prices of precious metals (gold and silver), crude oil, edible oil and other commodities, there was no reason as to why cotton prices should not have followed the same price pattern. In view of very high prices of lint cotton above US $2.0/lb level and tight supply position, global cotton consumption may finally be even lower than our present estimate of 116.6 million bales.
The historically high prices of lint cotton, yarn and cloth would adversely affect generally all types of garment sales but particularly the high priced garment sales. Resultantly, a good percentage of the buyers of high priced garment would try to switch over their garment purchase to comparatively lower priced garments to balance their budget. In other words, demand of high priced garments would decrease and that of lower priced garments would increase. Countries producing low-priced / cheap garments would get more orders from local as well as export markets, performance of which would certainly benefit their economy. Pakistan, Bangladesh and Vietnam mostly produce low-priced garments. Bangladesh exports garments worth of about US $15 billions while Pakistan's garments export is less than US $5 billions and as such Bangladesh would be highly benefited from the shift of garment sales from high priced to low priced units. If Pakistan's garment sector accepts this challenge, they can be nicely benefited but there are scant hopes. By roughly looking at the details of comparative unit prices of the running season with that last season, we come to the conclusion that the impact of high prices of raw materials have not been duly loaded on next processed items. As such, high raw material prices have been reflected by about 60% on cotton yarn, 25% on cotton fabric, 10% on knit wear, 15% on bed-linen and 9% on garments.
If we look at this matter minutely, we come to know that the reflection of increase in prices of cotton to yarn may take averagely three months, yarn to fabric or knitwear another three months, fabric to garments another two months. Roughly, it takes about 8 to 9 months for any fluctuation in cotton prices to be reflected on retail sales of finished goods. As such, the reflection of high prices of lint cotton would take another three months to reach retail shops.
Pakistan's six months (July-December 10) export performance does not indicate any clear-cut increase towards export volume but to increase total revenue and also in unit prices of export commodities which is the effect of higher prices of raw materials. Our exporters have apparently shared the increase in raw material prices with the foreign buyers.
Lint cotton prices touched US Cents 211.02 in March 11, contract on 17th February, 11, being highest of the history and lost limit of 7 cents on 18th instant to finally settle at 204.02. Local lint cotton prices have touched the level of Rs 13,000 per 37.324 Kg ex-gin on 18th instant and may be following international trend of prices. Seed-cotton prices have touched ever high level of Rs 5,900 per 40 Kgs gin delivery. The trend of cotton prices appears steady to firm but most of the players appear exhausted.
Pakistan's exports of goods during seven months period of July-January, 11, have reached US $13.228 billions against export value of corresponding period at 10.784 billions (On this basis, the annualised exports this season will be US $22.77 billions) - the increase in seven months is 22.66%. The share of textile and apparels in the exports of January 2011, comes to 43.26% of the total exports while that of apparels only 6.87% of the total exports while the export share of garments in total exports of Bangladesh is around 80%.
I conclude this report on beautiful note of Nusrat Hasan, the then founder Chairman of Cotton Export Corporation of Pakistan who very ably served the cause of cotton exports of Pakistan for more than a decade and is now around 90. He wrote in the foreword of my book titled "Pakistan cotton and Textiles". "We keep on saying (and rightly so) that cotton is the backbone of Pakistan's economy but unfortunately the cushion and spring mattresses, we have provided for it to lie upon, are so hard and out-dated that they keep on sending bouts of acute sensation of pain and strain throughout the spine leading from one crisis to the other". The other day I along with some other officers, who served under him, called upon him to pay our respect and tribute to his glorious past. We also called upon another equally respected officer Farrukh H Wania, a real cotton professional, to pay respect to him who is also around 90. These nice and memorable meetings would be great source for our aspiration. We all pray for their good health and long life.

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Cotton Production

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(Millions of 480 lb. bales)

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                   2006/07   2007/08   2008/09   2009-10   2010/11   2010/11

                                                           January  February

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China                 35.5      37.0      36.7      32.0      30.0      30.0

India                 21.8      24.0      22.6      23.2      26.0      26.0

United States         21.6      19.2      12.8      12.2      18.3      18.3

Pakistan               9.6       8.6       8.7       9.6       8.8       8.8

Brazil                 7.0       7.4       5.5       5.5       8.2       8.2

Uzbekistan             5.4       5.4       4.6       3.9       4.8       4.7

Australia              1.4       0.6       1.5       1.8       4.0       4.0

Turkey                 3.8       3.1       1.9       1.8       2.3       2.3

African Franc Zone     3.4       2.3       2.2       2.1       1.6       1.6

Turkmenistan           1.2       1.3       1.4       1.3       1.5       1.5

Argentina              0.8       0.7       0.6         1       1.3       1.2

EU-27                  1.6       1.7       1.2         1       1.1       1.1

Burkina                1.3       0.7       0.9       0.7       0.9       0.9

Greece                 1.4       1.6       1.2       0.9       0.9       0.9

Syria                  1.0       1.1       1.1       1.0       0.8       0.8

Rest of World          7.7       7.3       6.3       5.3       6.1       6.9

World Total          121.8     119.7     107.1     101.5     115.5       115

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Source: USDA

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