World cotton price collapse may affect cotton production next year

After the price of cotton has climbed to an unsustainable high, the market fundamentals have undergone healthy changes. In recent months, the world cotton price has been adjusted.

In 2010-11, the balance of supply and demand was tight. Due to a significant rebound in production in 2011-12, the world cotton market entered a state of oversupply.

Ending stocks are expected to increase significantly.

Since the supply is much greater than the demand, the price naturally responds. Supply pressure has caused prices to plummet, certainly affecting the income of cotton farmers in many countries. The International Cotton Advisory Committee (ICAC) in Washington, DC, recently reported that this year’s cotton price decline not only reduces farmers’ income, but also compares with cotton’s main alternatives. It will also reduce the attractiveness of cotton for the first time in three years.

India's Cotton Situation India's domestic cotton situation is no exception. Indian cotton farmers, especially farmers in Maharashtra, have begun to demand higher support prices to compensate for the loss of revenue caused by the collapse of prices.

Unfortunately, the government failed to persuade cotton farmers to accept reality.

It is necessary to educate cotton farmers, and do not expect unrealistic talk about higher prices, regardless of the demand and supply situation. It is necessary to establish a capacity among growers that can withstand the rise and fall of the market.

At present, the overall global commodity market situation, especially the agricultural product market, is far from optimistic. The overall agricultural product price has been under pressure in recent weeks.

Eurozone debt is worrying, and the healthy and growing popularity of the global economy is currently driving the market.

The non-commercial position of the US Commodity Market Regulatory Agency (CFTC) reflects selling pressure and many commodities, including cotton, are at the lowest level in more than a year.

The price forecast is no wonder that many analysts have revised their price forecasts for 2012.

As for cotton, the market may experience the largest year-on-year drop. If prices are under downward pressure after at least three major cotton producing countries harvest, it should not be surprising.

Worse still, falling prices or consumer-friendly prices are unlikely to stimulate demand, as concerns about the macro economy remain the dominant factor, and they are the leading indicators of economic slowdown in various countries.

The ICAC assessed that this year's price level will result in the reduction of global cotton production in 2012-13 to approximately 25.14 million tons, compared with 26.88 million tons this year. This means that next year production and consumption will be evenly matched. Of course, there are many factors that cannot be estimated from now to next year.

However, it is certain that the world cotton prices will continue to face pressure in 2011-12. If the global economic outlook deteriorates, demand will be affected equally. On the Other hand, central banks around the world have begun to take concerted action to improve liquidity and help financial markets.

Now the monetary tightening tends to ease. It is possible to establish an inventory at the current price. Of course, the weather is the most powerful unknown factor that we know.

World cotton prices will certainly be much lower than 100 cents/lb. In the next two quarters, the average quarterly price will gradually drop to 90-85 cents. This implies that the Indian market will face a surplus of cotton.

Of course, this is a very good time for textile mills to purchase and establish long-term inventory. It remains to be seen whether they will enter the market or wait for prices to continue to fall.