Stocks of Cotton will Cast Pressure on Prices

Futures news, cotton. Following the publication of current balance of supply and demand for next agricultural season, June price has reached 80 dollars per bale, and has been traded at 77-79 dollars per bale by the end of the week. Cotton price kept falling at the beginning of this week and has almost reached the point of 70 dollars. The volume of global cotton trade is expected to increase by 13%, to 8.6 mln. tons in 2011-12 MY. This will become possible due to record volume of import from China. Import in other countries worldwide, as predicted by analysts, will reduce by 18%, to 4.2 mln. tons. This season the share of Chinese import amounts to 52%.

American export has reduced by 21%, to 2.5 mln. tons due to shortage of supply; however, supplies from India, Brazil, and Australia may become record high. As a result, although experts expect Chinese stocks to increase by over 2 times – to 5 mln. tons in 2011-12 MY, the growth of reserves in other countries worldwide will be more modest and amount to 14% or to 8.1 mln. tons.

During the season of 2012-13 cotton crop will rise in the Northern hemisphere. The global cultivation area is expected to reduce by 7%, to 33.6 mln. ha.

Taking into consideration average yield, global cotton production may drop by 7%, to 25.2 mln. tons. The shortage results from China, which is supposed to harvest 6.4 mln. tons. This is 13% less than the yield this season.

Following two seasons of decline, global cotton use for processing may increase by 4%, to 24.1 mln. tons during the season of 2012-13. This is conditioned by higher economic growth and lower prices for cotton.

As global cotton production exceeds its consumption, stocks of cotton will keep rising to 14.3 mln. tons or by 9%.

According to Commodity Trading Department, the predicted increase of cotton stocks will cast pressure on global cotton prices during the season of 2012-13. However, the strength of this declining pressure will greatly depend on Chinese national reserves. At present the point of 70 dollars provides strong support. After such considerable decline by about 20 dollars, the market is expected to enter certain consolidation.