The International Cotton Advisory Committee (ICAC) has issued a review of the world cotton situation.
The Secretariat projects global cotton area to contract by 9% to 31.5 million hectares and production to decrease by 11% to 23.2 million tons. This would be the second consecutive season of decline in cotton production and the smallest output in four years.
Cotton production in 2013/14 is expected to fall sharply in the United States (-25%) and Turkey (-30%), where competition with grains and soybeans is strong. Smaller crops are also forecast in China (-11%), Pakistan (-9%), Central Asia (-13%) and Francophone Africa (-10%).
Production is projected only slightly down in India, assuming a recovery in the average yield after two years of decline. Australian production could decrease by 14% if dryness returns. At this stage,
only small reductions in production are expected in other southern hemisphere countries as they will plant cotton six month later than northern hemisphere countries and may be seeing stronger cotton prices at that time.
Planting intentions for 2013/14 will likely change over the next few months, depending on final farmers’ returns from the 2012/13 crop and evolving commodity price relationships.
Global cotton mill use is expected to continue growing slowly in 2013/14, on the basis of a timid recovery in global economic growth. However, a small gain in cotton prices could constrain the increase in demand for cotton.
The Secretariat forecasts global cotton mill use to rise by 3% in 2013/14 to 24.2 million tons, driven by South Asia. Cotton mill use in China, the largest consumer, is projected down by 2% to 8.4 million tons.
In contrast, cotton mill use in India and Pakistan could grow significantly, driven by ample supply of cotton in the region and lower yarn production costs.
World cotton trade could remain almost stable at 7.8 million tons in 2013/14, as an expected further drop in Chinese imports could be offset by increased demand from the rest of the world.
The Secretariat assumes that China will import less cotton in 2013/14 than needed to fill the gap between consumption and production, and that the national reserve will contract slightly to make up for this difference. Import demand from Turkey, Bangladesh and Pakistan is expected to grow significantly.
After three consecutive years of increase, global stocks could shrink a little in 2013/14. The Secretariat expects them to contract by 6% from the record level of 16.6 million tons expected in July 2013, to 15.6 million tons in July 2014. Most of this reduction in stocks is expected to take place outside of China.
Inside China, stocks are expected to decrease only slightly to 6.9 million tons. The global stocks-to-use ratio could decline from 71% to 64%, which would remain much higher than average.
One major source of uncertainty regarding short-term global cotton supply and use projections stems from China. The Chinese government has accumulated a national reserve of over 7 million tons in the last 14 months by buying domestic cotton from the last two crops and by purchasing foreign cotton.
The cotton market knows that the China National Cotton Reserve Corporation (CNCRC) will continue buying Chinese cotton until the end of March 2013, no matter the expenses involved.
However, the cotton market does not know how the CNCRC will manage the national reserve after
that point. In addition, it is not clear whether and when import quotas will be opened in 2013, outside of the usual annual 894,000 tons quota linked to a 1% duty.
Cotton prices, after falling sharply in 2011/12, have remained 20% lower in the first four months of 2012/13 than over the same period last year.
In contrast, prices of competing crops (grains and soybeans mainly), are higher than in the previous year, further reducing the attractiveness of cotton to farmers, despite the existence of government support in some countries.
The Secretariat expects global cotton area to contract by 9% to 31.5 million hectares in 2012/13 and global production to decrease by 11% to 23.2 million tons, the smallest since 2009/10.
Planting decisions in the southern hemisphere will be made during the second semester of 2013 and will respond to commodity prices and weather conditions prevailing at that time.
After reaching record levels in 2011/12, cotton area and production fell in 2012/13 due to the drop in cotton prices. At this stage, cotton area in southern hemisphere countries other than Australia is projected down by 7% to 2.9 million hectares in 2013/14.
Overall, production in the southern hemisphere is expected to decrease by 8% to 2.8 million tons in 2013/14. The share of the southern hemisphere in world cotton production could
remain at 12% in 2013/14.
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