The International Cotton Advisory Council trimmed its expectations for cotton prices next season, even as Societe Generale ditched a "bearish" outlook on the fibre, flagging "speculation" of huge Chinese imports ahead.

The ICAC lowered by 2 cents to 71 cents a pound its forecast for average cotton prices, as measured by the Cotlook A index of physical values, in 2017-18, which starts in August.

The forecast implies a drop of more than 10.0% in prices from this season, for which the council nudged higher its estimate for average prices, by 1 cent to a three-year high of 79 cents a pound.

However, the rise in values in 2016-17 would sow the seeds of its own reversal, encouraging production expected to weigh on values ahead.

'Extra sowings'

"High cotton prices have prevailed in 2016-17, which are expected to encourage farmers to expand the area under cotton by 5% to 30.8m hectares in 2017-18," said the ICAC, an intergovernmental group.

Indeed, the council lifted by 460,000 tonnes (2.1m bales) to 23.58m tonnes (108.3m bales) its forecast for world cotton production next season, representing a rise of 820,000 tonnes year on year.

The upgrade was down in part to an increased forecast for this year's US harvest, upgraded by 200,000 tonnes to 4m tonnes, an 8% rise on the 2016-17 result.

"Farmers in the US are forecast to expand harvested cotton area by 12% to 4.3m hectares," the ICAC said, adding that it was assuming a yield of 938 kilogrammes per hectare, equivalent to 837 pounds per acre.

That would represent a retreat from last year's strong 869 pounds-per-acre result, on US Department of Agriculture data.

'Highly remunerative for farmers'

However, the comments came as Societe Generale lifted its outlook on cotton prices, for the 2017 crop, to "neutral" from "bearish", after in March rating sales in New York December futures as one of its top commodities bets.

The bank concurred that "current prices are highly remunerative for farmers and acreage expansion", flagging too that "higher profitability allows farmers to spend more on agrochemicals and seeds which should support yields".

But it added that "the increase in global supply will depend on the weather which has now become more crucial for cotton prices than ever", given a concentration of export supplies.

Australia, Brazil, India and the US account for some 70% of shipments between them.

Chinese imports

Furthermore, SocGen underlined the potential for a strong recovery in Chinese imports next season, with higher quality supplies from the government's stock sales programme said to be running low, and with the country's output falling far behind demand.

"Market perception/speculation is that China will need to import more than 10m bales (2.2m tonnes) in 2018-19 due to a significant deficit in domestic supply," the bank said.

This dynamic "could restrict downside potential in cotton prices despite an improvement in export market supply in 2017-18".

Changing dynamics

Imports of 10m bales - if indeed realised - would be the highest by China since 2013-14, before the country ditched a subsidy scheme which offered guaranteed, and generous, cotton prices to farmers – keeping domestic values high and so encouraging mills to look abroad for cheaper supplies.

Reduced incentives to grow cotton have seen domestic output fall from a high of 6.77m tonnes in 2013-14 to a forecast 4.8m tonnes for 2017-18, on ICAC data, helping a Chinese effort to run down state inventories built up through the guaranteed pricing scheme.

However, with weaker prices encouraging Chinese cotton consumption too, the dynamics have enhanced the country's deficit in output compared with demand, which is forecast by the ICAC at 7.7m tonnes in 2017-18.