2023-08-17 11:53:08
Global cotton production will likely decline next season (October 2023-September 2022) by three per cent, while consumption may remain stagnant and ending stocks might be lower.
However, China holds the key to prices as any drop in demand from the Communist nation might limit the upside to prices, analysts have said.
As a result, global cotton prices are expected to rule around 80 US cents a pound (₹52,600 a candy of 356 kg) over the remaining part of 2023.
Lower US, Uzbek crops
According to the US Department of Agriculture (USDA), cotton production may decline to 114.1 million (US) bales (217.7 kg) next season due to lower US and Uzbekistan crops. The Indian crop is also being projected to be lower. However, the output this season has been estimated higher at 118.3 million bales with larger crops in Brazil and Argentina.
Last month, the International Cotton Advisory Committee (ICAC) said projections for production next season are 24.51 million tonnes (112.58 million US bales).
Research agency BMI, a unit of Fitch Solutions, said global cotton output will likely be 116.5 million bales next season, down 0.9 per cent from 117.6 million bales this season.
“The downturn in global production will be driven by year-on-year) declines in Brazil (3.3 per cent), Mainland China (12.1 per cent), and India (1.9 per cent),” BMI said.
3 reasons for output fall
This is due to lower acreage under cotton in these three countries “due to weak global prices, poor margins compared to other crops, and concerns over fertiliser supplies”, it said.
At the same time, consumption will likely increase as mills are expected to replenish low cotton inventories with them.
“Consumption is up at 116.9 million bales, mostly led by stronger consumption prospects in China more than offsetting lower use in Uzbekistan,” the USDA said.
The ICAC said consumption next season will likely be 23.79 million tonnes (109.27 million bales). BMI said global consumption is expected to increase 5 per cent YoY in 2023-24 to 116.4 million bales.
Price outlook
Production declines in Brazil, China, and India and a muted y-o-y recovery in the US due to a reduction in the planting area will be offset by a weak economic outlook, with China’s latest import data from June 2023 showing a 49 per cent y-o-y decline in imports, the research agency said
In view of rising consumption, the USDA has estimated the carryover stocks next season to 91.59 million bales from 94.13 million bales.
In view of these developments, BMI said it was maintaining its 2023 cotton price outlook at 86.5 cents a pound (₹56,900 a candy), above the year-to-date average of 82.7 cents (₹54,400).
“…a less-than-expected upturn in demand from Mainland China continues to limit any upside (to the price),” it said.
“The US season-average farm price for 2023-24 is forecast at 79 cents per pound (₹52,000),” said the USDA.
Current prices
The ICAC has forecast the season-average A index for 2022-23 to range from 96.36 cents to 106.47 cents, with a midpoint of 100.78 cents per pound.
Currently, cotton futures on the InterContinental Exchange, New York, are quoted at $85.10 cents (₹56,000 a candy). In India, the export benchmark Shankar-6 cotton is currently ruling at ₹61,300, while unprocessed cotton (cotton) is ruling at ₹7,925 a quintal in Rajkot agri terminal market.
As regards Indian production, the USDA estimates it lower at 326.58 lakh bales (170 kg) next season once morest the projected 333 lakh bales this season. BMI said Pakistan’s cotton crop, hit by unprecedented floods last year, will likely rebound sharply next season to 6.5 million US bales.
Import demand, particularly from China, Vietnam, and Bangladesh, will rise 172 per cent to 43.4 million bales from 37.1 million bales this season.
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