Spend Matters welcomes this guest post from Verity Michie, market analyst at Mintec.
US cotton prices have been on a rollercoaster ride in 2017, ending the year on a high. Last April, we looked at whether this could be the end of high cotton prices. We concluded that yes, cotton prices should fall as latest figures showed rising US cotton planted area for the 2017/18 season. Our expectations became reality, as prices fell throughout the year until recently, when cotton prices rose 22% since the beginning of November, reaching high levels last seen in 2014.
So why have US cotton prices grown, when forecasts for planted area are still up 20% year-over-year for the current season?
The answer: India. Supply in India has tightened, with production revised down 2% month-over-month to 29.5 million bales and consumption revised up 1% m-o-m to 24.8 million bales. Many believe, however, that this production figure is still quite optimistic for the region, as an outbreak of pink bollworm infestation has damaged the crop, largely reducing yields. This has resulted in India’s ending stocks revised down 10% m-o-m to 13.2 million bales.
Lower domestic supply in India has caused them to seek cotton from elsewhere, and the US fit the requirements perfectly.
In the US, cotton ending stocks for 2017/2018 have since been revised down 5% m-o-m in December, to 5.8 million bales. This is due to increasing demand, with exports revised up 2% m-o-m to 14.8 million bales and domestic consumption revised up 2% m-o-m to 3.6 million bales.
Is this upward price trend expected to last?
First of all, this upward movement is unexpected in the market as five months into the 2017/2018 season, forecasts for production and ending stocks still remain 9% and 18% higher y-o-y respectively. Early indications from the 2018/19 season released by the USDA this month, however, suggest that although high supply is expected to be carried over from the current season, reduced production caused by lower planted area is likely to see lower ending stocks next season.
To further this, uncertainty around the cold snap brought on by the bomb cyclone and its effect on crops will likely add volatility to the market over the next few weeks. This suggests that prices could continue to recover from years of low levels, following a near seven-year low in 2016.
Πηγή: spendmatters.com