September 3, 2012

US cotton industry's export earnings nearly 30% down

Buoyed by lower prices and weaker foreign demand, US cotton industry faces a slump of nearly 30% in export earnings, raising doubts over the significance of firm advance orders by China.

The USDA pegged US cotton exports at a four-year low of US$4.8 billion in fiscal 2012-13, which starts in October, tumbling from US$6.7 billion the year before.

The drop reflected in the main lower expectations for weaker sales prices, after a slide in New York cotton futures of some two thirds from the record US$2.27 a pound, for a spot contract, reached in March last year.

"Unit value is expected to fall by nearly 25%, as cotton prices have fallen from the historic highs of the past two years," the USDA said.

However, volumes were set to drop too, to 2.6 million tonnes, the lowest in fiscal year terms since 2003, and reflecting lower shipments to China, the top importer of the fibre.

"US cotton exports are forecast down as the Chinese government's reserve policy is no longer stimulating import demand to build stocks," USDA officials said.

The comments come despite a firm start to the 2012-13 cotton marketing year for orders to China which, while below levels of the previous two seasons, are "third-highest in recent history", on Morgan Stanley analysis.

"Already, China has demonstrated a willingness to continue importing from the US," the bank said, in a report earlier this week forecasting that China may yet be set for a further round of cotton stockpiling, even after a more-than-doubling in inventories over the last year.

The USDA said that weaker cotton exports to China would, with softer purchases of corn and soy too, return the country to second place among US trade partners in agriculture, behind Canada.

"Tighter US exportable supplies and high prices for corn and soy are expected to lead to greater shipments to China by Brazil and Argentina.