Strong Recovery In World Cotton Production

World cotton production is forecast to increase to 25 million tonnes in 2010-11, which is 2.6 million tonnes higher than in 2009-10, according to according to the latest report from Australian Bureau Of Agriculture And Research Economics (ABARE).

Cotton production increases are expected in all of the major cotton producing countries. The largest increase is expected in the United States where prices of cotton, compared with corn and soybeans, favour a return to cotton production after three years of declining US cotton areas.

US cotton plantings are estimated to have increased by 15 per cent for the 2010-11 seasons. Assuming a return to more normal abandonment rates and seasonal conditions, US cotton production is forecast to increase to 3.64 million tonnes in 2010-11, which is nearly 1 million tonnes higher than in 2009-10.

India accounts for around 20 per cent of world cotton production and has recently emerged as amajor cotton exporter. The central region of India accounted for an estimated 64 per cent of Indian cotton production in 2009-10, with the south and north zones accounting for 22 per cent and 14 per cent, respectively. Nearly 40 per cent of Indian cotton is irrigated, with the remainder being rain fed. The growing periods for cotton in India are from late April to December in the northern zone; mid-June to February in the central zone; and August to February in the southern zone.

With the harvest nearly completed, Australian cotton production in 2009-10 is estimated to be389 kilotonnes , which is 60 kilotonnes higher than in 2008-09. Cotton quality of the 2009-10harvest has been reported as good, with 90 per cent reaching the industry base grade orbetter. Around 2000 hectares of planted cotton were lost to floods in the Dawson-Callide andEmerald regions in Queensland in early 2010. However, the same rain that caused the floodsled to improved yield prospects for both irrigated and dry land crops in other cotton producingregions.

High cotton prices and relatively low prices for broadacre production alternatives have led toa substantial increase in interest in cotton production in Australia in 2010-11. Australian cottonplantings are forecast to increase by 56 per cent to 328 000 hectares in 2010-11. However,even with average winter and spring run-off into irrigation storages, the availability ofirrigation water is expected to limit increases in irrigated plantings to around 38 000 hectaresin 2010-11. The bulk of the expected increase in cotton area is forecast to be dryland cottonplantings. Dryland cotton yields are typically around one-third of those for irrigated cotton, soAustralian cotton production in 2010-11 is forecast to increase by only 33 per cent in 2010-11,to 518 kilotonnes.

World Cotton Consumption Constrained By Higher Prices

World cotton consumption is forecast to increase by 2.8 per cent in 2010-11, continuing therecovery from 2008-09 when world cotton consumption fell by an unprecedented 10.6 percent as a result of the global financial crisis. World economic growth is expected to leadto increased cotton consumption in 2010-11, but high cotton prices, relative to prices forcompeting synthetic fibers such as polyester, are expected to constrain demand growth.World prices for the synthetic fibers that compete with cotton, which is mainly polyester,have been increasing since the middle of 2009, albeit not as much as the prices of cotton. Therelatively slow rate of increase of polyester prices can be partly explained by the extent of therecovery in world prices for oil which provides feedstock's for production of synthetic fibers likepolyester. The forecast shortfall between world cotton production and consumption in 2010-11 implies a further 900 kilo tonne decline in world closing stocks of cotton in 2010-11. The world cotton stocks-to-use ratio is forecast to decline to 40.8 per cent, which is the lowest level since1994-95.

Further Decline In World Cotton Stocks

The forecast shortfall between world cotton production and consumption in 2010-11 impliesa further 900 kilotonne decline in world closing stocks of cotton in 2010-11. The world cottonstocks-to-use ratio is forecast to decline to 40.8 per cent, which is the lowest level since1994-95.

World Cotton Prices Strong In 2010-11

The world indicator price for cotton (the Cotlook 'A' index) is forecast to average US82.5 centsa pound in 2010-11 (August to July), which is a 6 per cent increase from 2009-10. This forecastreflects an expected further fall in the cotton stocks-to-use ratio, despite a rebound in worldcotton production in 2010-11.

The daily world cotton indicator price at 15 June 2010 was US95.6 cents a pound, the year-todatehigh. The cotton indicator price is forecast to begin easing over the next few months asa result of a large increase in cotton production in northern hemisphere countries, particularlythe United States. This expectation is reflected in the prices for the no.2 cotton futures contracton the Intercontinental Exchange where, at 15 June 2010, the July 2010 contract closed atUS82 cents a pound, while the October 2010 contract closed at US79.3 cents a pound.