The Hindu Business Line : Cotton prices may fall next season

NOTWITHSTANDING a lower opening stock for the next season, record high production, consumption trailing output and lower imports by China are expected to combine during 2004-05 to cause a reduction in global cotton prices.

The Cotlook-A Index is expected to average 67 cents per pound next year, three cents lower than the average of 70 cents/lb projected for the current year ending July 2004.

World cotton production next season is likely to reach a record 21.85 million tonnes, the increase being essentially price driven. Output is expected to be some 8 per cent or 1.6 mt more than 20.24 mt of the current year as a result of a 6 per cent increase in acreage to 34 million hectares.

"Cotton prices in April were at their highest level at this time of the year in seven seasons," the Washington-based International Cotton Advisory Committee (ICAC) pointed out.

World mill use is projected up only one per cent in 2004-05 climbing to a record 21.3 mt, while net imports by China are projected to decline from an estimated 1.7 mt to 1.5 mt in 2004-05.

According to ICAC, the textile industry will be positively affected by higher economic growth and by the elimination of quotas on textiles and apparel trade after January 1, 2005. However, cotton's market share continues to erode because polyester remains cheaper than cotton.

"The WTO dispute will not affect US production and exports during the next two seasons," ICAC said, in response to the WTO panel's interim report upholding Brazil's objection to subsidies in the cotton programme of the US. Also, the European Union farm reform programme that envisages decoupling of income support to producers from production would take effect in 2006-07.

For 2005-06, ICAC has forecast a record global cotton output of 22.22 mt, consumption at 21.56 mt and exports 6.59 mt. Prices during the year are expected to average lower at 61 cents/lb.