Cotton production to drop the most in 20 years

Cotton harvests worldwide will be seeing the biggest drop in two decades. Crops will tumble 11 percent, the most since 1993, to 23.2 million metric tons in the year beginning Aug. 1, as per the latest released data from the International Cotton Advisory

Committee.

Farmers will reduce sowing to 31.58 million hectares (78 million acres), a 7.7 percent decline and the largest in 11 years, according to Washington-based ICAC, which represents 41 governments, reported Bloomberg. By July 2014, stockpiles will shrink 4.9 percent to 15.9 million tons, the first reduction in four years, the institution warned.

As showed in different international surveys, cotton harvests are heading for the biggest drop in more than two decades as farmers from the U.S. to India reduce planting and China increases demand for higher- quality imports.

Growth in China, the second-largest economy and the top cotton user, will accelerate to 8.3 percent in the third quarter after ending a two-year slump in the last three months of 2012. While global cotton output is tumbling, consumption will increase 3 percent as the world economy recovers, leading to a shortage for the first time since 2010.

In the United States, Southwest cotton acres could drop by 24.4 percent in 2013, according to the National Cotton Council’s 30th Annual Early Season Planting Intentions Survey. The Council’s estimate, based on its survey of growers across the Cotton Belt in late December and early January, said growers in the Southwest could plant 5.23 million acres of cotton, down from 6.91 million acres in 2012. Across the Belt, farmers indicated they intend to plant 9.01 million acres of upland and Pima cotton or 27 percent fewer acres than they did in 2012. The figures were released at the Council’s annual meeting in Memphis, celebrated earlier this week.

Thus, the world’s largest exporter will be facing planting will plummet of 16 percent this year to 10.32 million acres, the least since 2009, according to the average of 13 analyst estimates compiled by Bloomberg.

Consequently, prices are forecast to rally 15 percent to 95 cents a pound by the end of 2013, according to the median of 16 estimates from analysts and traders compiled by Bloomberg. It is worthy of note that the cotton prices lost over 60 percent from a record in 2011, prompting farmers to switch to soybeans and corn.

In this context, China is buying higher-grade American and Australian fibre for textile makers at cheaper prices than domestic supplies and sitting on lower-quality local stockpiles to subsidize farmers.

“China will want to import some cotton that the world doesn’t have to give next season,” said Peter Egli, director at Chicago-based Plexus Cotton Ltd, commenting the figures for Bloomberg. “Prices will have to go higher to satisfy mill demand and China imports,” he said in a telephone interview.

Despite the gloomy outlook for producers, apparel retailers will be benefiting from more affordable raw materials. "The fact that input prices were significantly lower than last year because of the dramatic drop in cotton prices, and the post-Christmas enthusiasm helped on markdowns," said retail analyst Jan Kniffen for Reuters. "So, despite the only OK Christmas selling season, margins are better than otherwise."