The Hindu Business Line : Global cotton price likely to rise 10% next season

Even as the 2006-07 cotton season is half way through, market participants have begun to look for early signals that would set the tone and price direction for 2007-08.

Stable output

Unchanged output, rising consumption and lower ending stocks are likely to combine next season to push global cotton prices up by over 10 per cent from the current levels.

World cotton production is forecast to remain stable at 25.3 million tonnes next year whereas consumption is expected to continue to increase to 26.5 mt (2 per cent), according to Washington-based International Cotton Advisory Committee (ICAC).

As a result of output trailing consumption, world cotton stocks are expected to decline by 7 per cent to 10.7 mt by the end of 2007-08, the agency pointed out.

Trade to move up

After declining by a million tonne in 2006-07 to 8.8 mt, world cotton trade is forecast to once again move up to 9.1 mt. next year on expectation of strong Chinese import demand.

In view of these anticipated developments in demand and supply fundamentals, season average Cotlook A-Index is forecast at 66 cents a pound next year up from average of 59 cents for 2006-07.

Cotton arrivals in India are heavy. In January and February, such arrivals may total close to 120 lakh bales.

Shifting preferences

Prices are consumer-friendly. Export shipments are estimated at about 20 lakh bales, with pending orders placed at about 10 lakh bales.

There is expectation that some part of cotton acreage in the US may be lost to corn (maize) as a result of which output at the origin may decline next season.

A clear picture would of course emerge sometime in April/May.

Smaller area in the US for cotton can potentially push world prices higher.

Price prospects for next season should provide encouragement to cotton growers in the country. Current season output is estimated at 270 lakh bales. A 10 per cent increase next season should be targeted so that Indian cotton exports can expand further.