World cotton price likely to see further drop next season

World cotton prices likely to see further decline next season, to their lowest since 2006-07, despite some attrition in world stocks. According to the Abares Commodities bueau, cotton prices, as measured by the Cotlook A index of physical values, will average a nine-year low of 60.4 cents per pound in 2015-16, down from a forecast 70.3 cents per pound for this season.

Separately, the International Cotton Advisory Committee restated a forecast of the Cotlook A averaging 68 cents a pound this season.

Abares said that large world stocks, built up largely thanks to a generous farm subsidy regime in China until its reform last year, will continue to place downward pressure on prices.

And the drop could be even bigger, depending on how China manages its inventories, which at more than 13m tonnes are set to account for some 55% of the world total as of the end of 2014-15.

A major downside risk to this price forecast is the management of China’s large cotton stocks. If the Chinese government decides to release cotton holdings onto the world market, prices could average significantly lower than currently forecast.

The Abares forecast came despite expectations of world cotton production, down 1.4m tonnes at 24.8m tonnes in 2015-16, falling behind consumption for the first time in six years.

Thanks to lower cotton prices, growers in most major producing countries are expected to increase plantings of alternatives, such as sorghum, corn and soybeans, which are expected to provide more favourable returns, the bureau said.

By contrast, the lower prices will encourage demand, although the weak prices of rival fibre polyester will limit the upgrade in cotton consumptions to 800,000 tonnes, taking it to 25.3m tonnes. Given relatively low polyester prices, cotton consumption growth is likely to be constrained in the short term.