Cotton prices start 2014 high before sharp fall

Cotton prices have had a bumpy start to the year, hitting a 3-month high in main markets such as Karachi´s to sharply fall days after on weaker demand from China and raised production in the US. Meanwhile, cotton futures have retreated to a three-week low ahead of an update on trading from

the US market. According to market insiders, traders are showing caution on the future of cotton based on weak US export sales, forecasts for a sharp reduction in imports from China and a smaller international market.

The US government has recently boosted its forecast for record global cotton inventories for the 2013/14 crop year for the fifth time this season, sending prices lower.

Cotton

prices down on weak forecast

Cotton’s overall market share has fallen 8 percent to 9 percent since 2007, according to estimates by Jon Devine, senior economist at Cotton Inc. Worldwide; cotton area is expected to decline in 2014-15, mostly on a projected withdraw in China, as per the International Cotton Advisory Committee´s (ICAC) estimates.

On the upside, global cotton mill use is expected to continue growing in 2014-15 on the basis of continued recovery in world economic growth. However, ICAC said a small gain in cotton prices could constrain the increase in cotton demand.

The US Agriculture Department (USDA) raised its production estimation for China and the United States, world´s major producers. Global production will total 117.8 million bales this season, down from last year's 123.1 million bales but up from December's outlook of 116.8 million bales, the USDA said.

The revision has come as a surprise to many traders who had anticipated a decrease to the country’s output after unfavourable weather this season and offset a lower production forecast for Pakistan.

Additionally, China is likely to stop buying cotton for its reserves by August, said Jarral Neeper, president of the California-based marketing cooperative Calcot, reported the Dow Jones Newswire.

China’s imports could drop 45 percent to 6 million bales during the 2014-15 marketing year that begins Aug. 1, warned Neeper in a recent trade´s conference. Similarly, The China Cotton Association has estimated plantings for 2014 would be down 8.9 percent to about 10.5 million acres, a third straight annual decline.

Neeper, who is also president of Calcot, a growers co-operative and one of the largest US exporters, cautioned that China's cotton imports may drop as much as 45 percent in 2014/15 as Beijing ends its stockpiling program and starts reducing its huge inventories.