The Hindu Business Line : Cotton prices may drop on record global output

IN an exceptional development, world's top five cotton producers (China, USA, India, Pakistan and Brazil) are all going to harvest a large crop in 2004-05, raising global cotton output to an all-time high and pushing prices rather low. End-stocks are expected to move sharply up by two million bales, even as low prices encourage consumption.

World cotton production in 2004-05 would be a record 24.14 million tonnes, up from 20.61 mt of the previous year, the largest year-to-year supply increase in 20 years, according to the Washington-based International Cotton Advisory Committee (ICAC).

World cotton consumption is being stimulated by lower prices, combined with improving world economic growth despite higher oil prices. Cotton is expected to remain competitive with polyester as a result of which mill use is forecast by ICAC to grow by about 3 per cent to reach a record 22 mt

(21.34 mt) On the other hand, world cotton exports are set to decline from a record of 7.3 mt in 2003-04 to 6.7 mt in the current year. With consumption trailing production, world stocks are expected to rise to 9.84 mt by end July 2005.

Supply-demand estimates suggest that the Cotlook A-Index will average 48 cents per pound this season, 20 cents or 30 per cent lower than last season, disclosing the sharpest drop in absolute terms since 1985-86, ICAC pointed out.

India, too, is in the process of harvesting a record crop. Cotton prices have been ruling rather low, prompting concerns in farming as well as Government circles. It remains to be seen how effective is the market intervention operation of Cotton Corporation of India. Despite a bumper domestic crop, India is likely to remain a major target market for other producers.