December 26, 2011


World cotton market may weaken in 2012


The 2012 outlook for cotton prices seems bleak amid uncertain global economic situation and rising global production, experts said.


John Robinson, agricultural economist with Texas A&M University lowered his 2012 outlook for cotton prices. "I was expecting a range of 85 cents to about US$1.05 for December 2012 futures," Robinson said. "My new range is 75 cents to US$1/lb."


"If Europe goes into recession, that will reduce demand for apparel," he said. "History shows that during times of recession, demand for apparel declines."


Following the record-high cotton prices of late 2010 and early 2011, demand for cotton has steadily decreased while output has increased. "There's been an ongoing demand response and substituting of manmade fibers," says Robinson.


Buyers also continue to cancel purchases. "Mills bought high-priced cotton in a panic, and now that they are faced with those prices, they don't want the cotton," he said.


USDA sharply reduced projected world consumption of cotton in its December World Agricultural Supply and Demand Estimates (WASDE). Global use is now projected at 111 million bales, down nearly 7% from 2009-10 use of 119 million bales.


At the same time, world production of cotton has increased. "Farmers in Australia, Brazil, India, and China all responded to the recent record-high prices," said Robinson. The A-Index, a measure of the world's least expensive price to deliver cotton to Shanghai, was in the upper 90-cent range in late December. "A lot of growers around the world make money when the index is at 70 cents," he added.


With global cotton production increasing and demand weakening, world ending stocks have grown significantly over the past few years, according to USDA. In 2008-09, global ending stocks for cotton stood at 44.24 million bales (480-lb. bales), about 37% of total use. Global ending stocks for 2011-12 are projected to hit 54.96 million bales—more than 44% of total projected use.


The one factor helping to support current cotton prices is the severe drought gripping Texas, which typically accounts for about half of US' cotton acres. And even though Texas growers only harvested about half of the cotton acres they planted last year, analysts believed Texans will plant as many acres to cotton this coming year as they planted last year.


Robinson agreed that Texas growers will plant as many or more acres to cotton as they did last year, but is not convinced that all of it will come up. "Once it's in the ground it's a weather market," he noted. He expected US cotton acreage to drop by about 500,000 acres as growers in the Delta and Southeast put more acres into soy and corn.


US cotton producers won't be making up for lost revenue by selling seed this coming year. Cottonseed prices, which earlier this year exceeded US$410/tonne, delivered to dairies in Texas, have already fallen by US$35-$40/tonne and are expected to continue dropping.

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