June 1, 2012

 

Advances in US cotton planting results in lower price forecast

 

 

Due to advances in US cotton sowings and speculations that China may re-export some of its huge stockpiles, Standard Chartered slashed its cotton price estimates.

 

The forecast for the average 2012 price was cut by US$0.15 a pound to US$0.85 a pound.

 

The bank, which had forecast prices being buoyed by reviving demand and a now-repealed Indian export ban, said that cotton's supply and demand fundamentals were now "increasingly bearish".

 

A drop in New York futures last week, which saw the July contract touch a 27-month low of US$0.7053 a pound, represented a "mean reversion, and hence price normalcy", StanChart analyst Abah Ofon said.

 

"So we do not expect a strong rebound."

 

Separately, Australia & New Zealand Bank said that prospects for huge world inventories of the fibre suggested that prices should be trading in a range of US$0.50-$0.60 a pound.

 

Ofon highlighted the pace of US cotton sowings, which official data overnight showed were 76% complete, ahead of an average of 70%.

 

The USDA data also showed the crop rated 57% in "good" or "excellent" condition, better than many analysts had expected given continued dryness in parts of Texas, America's top cotton producing state.

 

While no comparable data were available from last year, the 2011 good-or-excellent rating as of mid-June was 28%, and 62% a year before, ahead of the southern US drought.

 

"Barring adverse weather conditions, US production potential could surprise on the upside on the back of improved yields, even though producers have reduced planting by 10% compared with last year," Ofon said.

 

The USDA currently foresees US cotton output rising 9.2% to 17 million bales this year.

 

He also flagged talk that China may be exporting state reserves built up in a buying spree which, on Texas A&M University estimates, has snapped up some 14 million bales of domestic cotton and more than 4m bales of imports, taking the total inventories to some 20 million bales.

 

Chinese exports may be reflected in forthcoming export data from the US, the top cotton shipper, Ofon said.

 

However, prices would be supported by the depleted level of US inventories at the close of 2011-12 and the prospect still of weather damage to crops.

 

And ANZ said it was "unlikely" that prices would indeed return to the US$0.50-$0.60 a pound range suggested by huge stocks, given comparison with prices of oil-based alternatives such as polyester.

 

"The major price adjustment needed to make cotton competitive with synthetics has occurred," ANZ analyst Paul Deane said.

 

New York's July cotton contract stood at US$0.7276 a pound at 12:45 UK time (07:45 New York time), down 0.1% on the day but well above last week's low.