Source: commoditydna.com

By Ibrahim Patel

Feb 07, 2018
*Cotton price break somewhere in the low 50-cent range
*World cotton production for 2017 is estimated at 120 million bales with consumption estimated at 119.6 million

Now where goes cotton prices?

The global cotton market should show a small supply surplus in 2018-19, as relatively elevated values attract sowings. This trend suggests that cotton prices will fall further in the next few months. There can be no talk of any shortage of cotton, with inventories forecast by the US Department of Agriculture as rising by 22% over 2017-18, with the significant production increases in the US and India playing a primary role here, The Commerzbank said in a report. Cotton can be a highly volatile commodity which, at times, attracts speculative interest to the futures contracts that trade on ICE.

Over the past seven years, cotton futures have traded in a range from 55.66 cents in 2016 to $2.27 per pound in 2011. The rally that led to the highs in 2011 started in 2010 and led to the highest price that cotton futures have ever reached. Before that year, the fibre only managed to reach a peak price of $1.1720 in 1995. US cotton acres to increase by about 3 percent in 2018, to 13.1 million acres. As per the rating agency Crisil report, in Indian the area under cotton cultivation is estimated to have increased by 19 per cent to 123 lakh hectares compared with 103 lakh hectares in 2016-17.

It is also 7 per cent higher than the 5-year average of 115 lakh hectares, said Crisil. Production issues within India’s major cotton areas show significant yield decreases, attributed to insect pressure and other factors. However, erratic monsoon rains and anticipated pest-related yield losses may fall by 7 per cent to 520 kg per hectare. Even though, production is expected to rise 11 per cent to 37.5 million bales (170 kg each).

As per Cotton Association of India, with the production of 37.5 million bales, 3 million last year stock and after 2 million imports, marketable stock will be 42.5 million bales remain. From which 32 million bales local consumption and after export 5.5 million bales, 5 million bales will remain yearend stock.

The US production estimate for 2018 is 21 million bales (218 kg each), export projections are for 15.5 million bales, with 3.5 million bales of domestic use, for a total consumption of about 18 million bales. That will add about 2 million bales to the U.S. surplus, which will mean a 7 million to 7.5 million-bale ending stocks number. Not a very bullish picture.

World plantings will be down 3.5 percent, as India transitions acreage in a key cotton production area to food crops. Overall, world yields will remain flat to a little lower. World cotton production for 2017 is estimated at 120 million bales, with consumption estimated at 119.6 million. All major players show improved production.

While some Indian cotton is finally coming to the market, the U.S. continues as the principal supplier of old crop cotton to the world’s textile mills. This will continue to support the market retracement to higher prices. Nevertheless, the market volatility will continue due to the imbalance of on-call sales versus on-call purchases.

Mills are sitting on a lot of cotton, bought on call, expecting prices to go nowhere but lower. They are hoping for a price break, somewhere in the low 50-cent range. (Source: commoditydna.com)