Cotton: the vagaries of weather

Those living in hot and humid regions must be experiencing a rough time since the day cotton left the comfort of its long-term stable price era.
The flurry in global cotton market started in the middle of 2010, after bad weather conditions across various countries brought attention to the declining level global fiber stocks.
The grumbling on the part of manufacturers and consumers seems justified since the panic buying took global cotton prices, according to IMFs Cotlook-A Index, to a record high of around $2.44 per pound in March this year. The Cotlook-A Index is calculated by taking a simple average of the cheapest five quotations from a selection of the main upland cotton traded internationally.
However, after eight consecutive months of increase, cotton started losing momentum. Since then, the average Cotlook-A Index eased to $1.65 per pound in May and is set to weaken further in weeks ahead. But even at current price level, cotton is quite expensive compared to average price of around $1.03 per pound and 63 cents per pound in CY10 and CY09, respectively.
Local cotton bazaar has also managed to closely follow the global trend. The fiber is currently hovering around Rs8500 per maund, down from its peak level of Rs13, 000 per maund touched in March.
The fall in prices is largely due to expectations of bumper cotton crop this year; however, demand destruction, on account of upward shift in cotton supply curve, is also to be blamed.
Lured by higher prices, global cotton production area is projected to expand by 8 percent to 36.3 million hectares in 2011-12. This will help framers around the world to produce 126 million bales in the coming season, which will be 9 percent higher than last years level, according to International Cotton Advisory Committee.
Similarly, Pakistan is also aiming to harvest 15 million bales of cash crop in 2011-12, a jump of 30 percent compared to this years production level of around 11.5 million bales.
The target projection level definitely presents a positive scenario i.e. favorable weather condition and control of virus. But growers assert that cotton production outlook will remain unclear till September due to uncertainty over the level of rains in July and August.
On the other hand, the global consumption outlook also remains dicey. The ICAC forecasts global consumption to grow by around 2.6 percent to 118 million bales in 2011-12, but certain downside risk remains on the back of weak fiscal health across European countries.
The uncertain weather condition will continue to give a benefit of doubt to cotton farmers during the next few months. However, if actual weather condition remains close to a good-case scenario, excess cotton supply could severely reduce cotton growers income next year.