Cotton future murky

Despite witnessing a 20 percent increase in the volume traded over last year, world cotton trade has remained fairly pessimistic with global cotton mill usage going down by 7 percent to 22.7 MTN during 2011-12; a significant eight-year low. With global stocks expected to mount up to 64 percent of the world consumption by the end of 2013, the International Cotton Advisory Committee (ICAC) expects the world trade to drop by a considerable 18 percent during the next season as a result of the highest stock-to-use ratio since the late 80s, according to a statement released by the Washington based organisation on Monday. As cotton prices continue a downward slide; selling as low as 72 cents per pound as of July 3rd, 2012, the prospects of a deteriorating demand outlook as a result of the projected accumulation of cotton stocks is also expected to bring the international prices to a further low. The season 2011-12 was mainly characterised by substantial price volatility in the cotton market, with trade policies adopted by India and China-two of the worlds biggest cotton producers-having had a considerable impact on the global commodity market. Chinas aggressive purchasing from foreign markets as a result of the shortfall experienced in domestic production has been in fact cited as one of the biggest reasons that the word trade went up to 9.2 million tons during 2011-12. On a contrasting note, cotton exports to markets other than China fell by 18 percent during 2011-12 which puts the projected slump following the expected 50 percent drop in demand from China during the next season into sharp relief. With production exceeding consumption for the third year straight, there is going to be added competition in the commodity market with exporters looking to target a "reduced export" pie, consequently lowering imports to a forecasted 7.56 million tons during the new season which begins next month. These declining prospects of the world cotton trade present an even worse picture than the one painted by USDAs Foreign Agricultural Service June report, which had posted reduced world consumption estimates for both the 2011-12 and 2012-13 crop seasons. With world consumption forecasted to fall by 955 thousand bales to 109 million bales according to USDAs report, market developments indicate a bearish price trend in the international market whichever way one may choose to look. A significant decrease in levels of cotton plantation are also expected following the negative price estimations, with ICAC projecting total production to decline by 8 percent over the coming season. Following the 10 percent year-on-year increase in global cotton stocks, producers-particularly in the Southern Hemisphere-are likely to move towards crops such as Soya bean which has been witnessing a steady incline in prices unlike the so-called white gold.

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WORLD COTTON DEMAND AND CONSUMPTION
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(00 MT)          2008-09   2009-10   2010-11   2011-12      June
                                                          2012-13E
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Production          23,365    22,258    25,344    26,795    25,102
Dom. Consumption    23,987    25,813    24,966    23,104    23,734
Exports              6,619     7,750     7,982     9,453     1,818
Imports              6,635     7,914     7,821     9,448     8,050
Ending Stock        13,609    10,412    10,780    14,658    16,222
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Source: USDA FAS
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