The Hindu Business Line : High cotton prices may drive up output

AFTER hitting a high of 80 cents per pound, world cotton prices are beginning to come off. During the first four months of the 2003-04 season beginning August 2003, the average Cotlook A-Index was 68.5 cents per pound.

Supply and demand estimates suggest the Cotlook A-Index will average 65 cents in 2003-04, according to International Cotton Advisory Committee (ICAC) here. But this price will still be considerably higher than the season average witnessed last three years.

Mr Terry P. Townsend, Executive Director, ICAC, told Business Line that high cotton prices this year would drive global cotton production up next year. Together with anticipated lower imports by China, higher production would lead to a drop in prices in 2004-05. The season-average Cotlook A-Index is projected to drop to 53 cents per pound in 2004-05, he said.

For the current year, world cotton output is estimated at 20.3 million tonnes, up one mt or 5 per cent from last season. On the other hand, world consumption is projected to decline for the first time in five seasons to 20.7 mt. Nevertheless, world ending stocks are projected to shrink to 8.1 mt, the lowest since 1994-95.

The world average yield is estimated at a three-year low of 621 kg per hectare, down 18 kg from the last season, according to ICAC, which attributed the decline to a 15 per cent drop in average yield in China. Notwithstanding the recovering economy and the weaker dollar, the US mill consumption continues to decline. Cotton mill use during the first three months of 2003-04 was 18 per cent lower than last season and 36 per cent lower than during the corresponding period in 2000. The US mill use is expected to drop to 1.3 mt in 2003-04 and to 1.2 mt the next season. China's cotton imports are projected to reach a record 1.2-mt this season, up from 0.68 mt last season. The share of US cotton will stay at 60 per cent.

As for India, ICAC's production estimate for 2003-04 is 2.75 mt (2.31 mt) and consumption 2.93 mt, little changed from last year.

During the 12 months to November 2003, the US dollar weakened against the currencies of most cotton producing and importing countries, partially offsetting the rise in prices in dollars when converted into local currencies. The US industry contends that Chinese exporters to the US benefit from the unfair advantage of their undervalued currency. However, most International Monetary Fund directors noted that there is no clear evidence the yuan is substantially undervalued at this juncture. The ICAC added that as the yuan is pegged to the US dollar, the erosion of US currency actually improves the competitiveness of China's exports to the US market at the expense of other countries.

Article E-Mail :: Comment :: Syndication

Stories in this Section
PM launches futures trading in wheat, rice

Exploit agri sector potential, says IRDA

Validity of duty-free licences on rubber import extended

Palm oil may correct lower

High cotton prices may drive up output

Govt to freeze grains procurement price

Govt keen on farmers, food processing industry tie-up