* 13/14 prices seen in range of 75 to 92 cents -Calcot exec
* China cotton policy change likely in 14/15 -Louis Dreyfus
July 26 2013
(Reuters) - China's cotton stockpiling policy and lower U.S. inventories will underpin 2013/14 New York cotton futures, though prices could fall some 10 percent later in the season as supplies increase, a group of industry experts said on Friday.
There is a "good chance" of a change in China's cotton policy in 2014/15, and that could set prices up for an even steeper drop further out, Joe Nicosia, the global head of cotton at Louis Dreyfus Commodities B.V., told the Ag Market network's annual radio program from New York. "Futures prices cannot go too low too early," buoyed by expectations of strong demand from China and falling U.S. supplies in the first months of the crop year that begins on Aug. 1, Nicosia said.
U.S. inventories are expected to total 3.9 million 480-lb bales by the end of the month, up from 3.4 million in the 2011/12 season and the highest level in four years, but exchange stocks are falling steeply and the U.S. crop is expected late after unfavorable planting and growing weather. 2013/14 prices will likely trade in a range of 75 to 92 cents per lb with the lower end of that forecast expected next spring, said Jarral Neeper, president of grower cooperative Calcot Ltd, one of the largest U.S. cotton exporters.
That would take prices down more than 10 percent from the benchmark contract's current level of about 85 cents per lb, even with an expectation of continued strong demand from China, the world's top textile market.
Prices will fall as new global supplies are harvested, but price declines below about 72 cents will likely spur even higher Chinese demand, keeping cotton prices historically high. The front-month cotton contract on ICE Futures U.S. has not fallen as low as 72 cents since early December and touched a one-year high of almost 94 cents in mid-March.
Demand from China for foreign cotton has grown since the introduction of a government stockpiling program in 2011, with Beijing paying above global prices. The program has put a floor under global prices and left the world with a sense of tightening supplies outside of China, even amid forecasts of record global inventories.
It is likely the United States will export more in the 2013/14 crop year than the 11 million bales forecast by the U.S. Department of Agriculture, but the outlook is murky beyond that and China's policy is likely to change, Nicosia said.
China is reconsidering the program, given the strain it has put on the country's textile mills. Global consumption has become dependent on China's continued stockpiling, as high prices have prompted more farmers to grow cotton and boost global output, even as they have driven demand toward lower-priced, synthetic alternatives. "The situation we find ourselves in today is unsustainable," Nicosia said. (Source: Reuters)