RECENT PRICE MOVEMENT
Global cotton prices were mostly stable over the past month, with NY futures, the A Index, and the CC Index virtually unchanged. Indian prices moved slightly lower; Pakistani prices moved slightly higher.
Prices for the March New York futures contract were largely unchanged. Despite testing levels above 61 cents/lb during holiday trading, values returned to the range between 58 and 61 cents/lb that they had been in since early November.
The A Index has been steady at levels between 67 and 70 cents/lb.
After falling throughout November, the CC Index was stable in December. In international terms, values for Chinese cash prices held near 100 cents/lb. In local terms, the CC Index declined marginally, dropping from 13,900 RMB/ton to 13,600 RMB/ton.
Prices for the most-actively traded May contract in China’s ZCE futures market increased slightly over the past month (from 95 to 97 cents/lb or from 12,900 to 13,100 RMB/ton), but continue to predict
a slight decline in Chinese prices in coming months.
Indian spot prices for the Shankar-6 variety drifted slightly lower in local terms, falling from 33,100 INR/candy in early December to 31,900 INR/candy in early January. In international terms, values
decreased from 68 to 65 cents/lb.
Pakistani spot prices increased from 56 to 59 cents/lb in international terms and from 4,650 to 4,900 PKR/maund in local terms last month.
SUPPLY, DEMAND, & TRADE
There were few large revisions in this month’s USDA report. At the world-level, the production estimate increased by 189,000 bales to 119.2 million and the consumption estimate decreased by 365,000 bales
to 112.2 million. The combination of a larger harvest projection and a lower forecast for mill-use generated a 559,000 addition to the global ending stocks figure. At its current level, world stocks are expected to
reach 108.6 million bales at the conclusion of the 2014/15 crop year. This volume is only slightly below projected mill-use (3.6 million bale difference). Correspondingly, the stocks-to-use ratio is estimated to be
nearly 100% (96.7%) and climb to a level more than double the average throughout the modern era (47.6% between 1960/61 and 2013/14). At the country-level, the most significant revisions to production figures were for India (-500,000 bales to 30.5 million), Tanzania (+100,000 to 400,000), the U.S. (+161,000 to 16.1 million), and Pakistan (+400,000 to 10.2 million). The only notable revision to country-level mill-use figures was for China (-500,000 to 36.5 million). In terms of trade estimates, there were changes for Pakistani imports (-400,000 to 1.0 million), Indian exports (-300,000 bales to 4.7 million), and Tanzanian exports (+100,000 to 275,000).
PRICE OUTLOOK
While harvesting is nearing completion in most northern hemisphere cotton-producing countries, supply-related focus is shifting to planting for the 2015/16 crop year. The National Cotton Council’s survey of
U.S. cotton producers is underway. Results that will be released February 7th could be expected to predict a decline in acreage for the 2015/16 season. In terms of production, a decline in U.S. plantings may be partially offset by improved growing conditions in West Texas. Rainfall in the region was higher than average during the 2014 calendar year, and if rain continues to fall in 2015, lower abandonment rates and
higher yields could be possible in that part of the cotton belt. The USDA will release a preliminary set of estimates for 2015/16 supply, demand, and trade on February 20th. An early forecast from Beijing Cotton Outlook suggests that Chinese cotton acreage could drop 15% next season, with much of the decline occurring outside of Xinjiang province and in the areas where government support has diminished. Such a decline in Chinese acreage should solidify India’s position as the world’s largest cotton producer. Due to yields below the world average, India was only recently able to surpass China in production despite consistently being home to the world’s largest cotton area. India was able to increase yields significantly in the 2000s with the adoption of seed technologies. Even though the time period following the improvement in yield included years when cotton prices were less competitive, there has not been a single significant year-over-year decline in Indian acreage since then. Instead, Indian acreage was either flat or moved higher. The trend has been definitively upward. India’s acreage in 2014/15 was more than 50% higher than the average in the early 2000s. In the current environment of lower prices, an important question for the global supply situation next crop year is whether India will decrease its acreage for 2015/16. The importance of this question relates to India’s position as the world’s second largest exporter. For the past several crop years, stocks in exporting countries have been held at relatively tight levels due to the increase in Chinese import demand that accompanied aggressive purchasing by China’s reserve system. Chinese reforms, and their increased emphasis on the use of domestic supplies, are expected to reduce global import demand for the next several years. Consequences are already being felt in the current season, with stocks in many exporting countries projected to increase. Lower acreage and production in 2015/16 may inhibit further increases in stocks in certain exporting countries next crop year. Since India’s acreage has only been
flat or higher in recent years, India may prove an exception. Given limited Indian warehousing capabilities, the more Indian cotton that is produced and in search of buyers, the greater the downward pressure there may be on both Indian and world prices.
