World consumption of raw cotton is forecast to exceed production in 2007-08. Reflecting this, the world cotton price indicator (Cotlook ‘A’ index) is forecast to increase by 18 per cent in 2007-08 to US69c/lb.
prices rose strongly in October
After averaging US61.3c/lb in the first nine months of 2007, the world cotton price rose significantly to average US68.9c/lb in October 2007, the highest monthly average in more than three years. Prices were supported by speculation that unseasonably heavy rainfall in parts of India and China could result in lower yields, and hence production, in those countries in 2007-08. In addition, high international grain prices led to increased market expectations of a further reduction in cotton plantings in the United States in 2008-09, placing further upward pressure on world prices.
Chinese demand for imported cotton is expected to increase in the short term, as mills use their remaining 2007 import quotas. Net imports of raw cotton in China are forecast to increase by 46 per cent in 2007-08 to 3.5 million tonnes as domestic consumption increases and production declines slightly. In addition, the depreciation of the US dollar against key Asian currencies is expected to stimulate increased import demand for US cotton elsewhere in Asia. A forecast 15 per cent decline in world cotton stocks is expected to contribute to upward pressure on world cotton prices.
By the end of 2007, cotton prices are expected to drift lower as harvest in the northern hemisphere progresses and supply concerns are reduced, particularly in India and China. After the northern hemisphere harvest, prices are expected to increase again as 2008 import quota is allocated in China and the size of the 2008-09 world cotton crop remains unclear.
world production to fall in 2007-08
In 2007-08, world cotton production is forecast to fall by 2 per cent to 26.0 million tonnes, largely as a result of forecast lower production in the United States and Africa — predominantly in Mali and Burkina Faso.
Cotton yields in India are forecast to increase in 2007-08, underpinned by average seasonal conditions and the continued adoption of genetically modified cotton. Despite excessive rainfall affecting yields in some isolated areas, cotton yields in India are forecast to reach 550 kilograms per hectare in 2007-08, 6 per cent above the previous season, but remain well below the world average of 770 kilograms per hectare. In 2007-08, Indian cotton production is forecast to increase by 11 per cent to 5.2 million tonnes.
Following excessive rainfall in some eastern producing areas of China during the harvest period, yields are forecast to fall by 3 per cent to average 1.2 tonnes per hectare. Reflecting this, cotton production in China is forecast to fall slightly in 2007-08 to 7.6 million tonnes.
Pest infestations in Pakistan in 2007-08 have affected both the quality and volume of cotton produced. According to local reports, production forecasts have been revised down by around 170 000 tonnes, with the worst affected areas located in the Punjab and Sind districts. Despite this, an increase in the area planted to cotton in Pakistan in 2007-08 is forecast to result in cotton production increasing by 5 per cent to 2.3 million tonnes.
US production boosted by low abandonment rates
Despite the area planted to cotton in the United States falling by 29 per cent in 2007-08, historically low abandonment rates, particularly in Texas, Oklahoma and Kansas, have boosted production estimates. Reflecting the lowest abandonment rate in sixty years, cotton production in the United States in 2007-08 is forecast to reach 4.1 million tonnes, although this is still 13 per cent below the previous year.
Initial forecasts for 2008-09, indicate that the area planted to cotton in the United States may fall by as much as 12 per cent, as producers in the delta states (Arkansas, Louisiana, Mississippi, Missouri and Tennessee) and south west states (Kansas, Oklahoma and Texas) divert land away from cotton to soybeans and wheat. If recent averages for yield and abandonment are applied, US cotton production may fall by 12–16 per cent. A decline in production of this magnitude would result in the smallest US cotton crop in ten years, placing significant upward pressure on world cotton prices.
world consumption to rise in 2007-08
In 2007-08, world consumption of cotton is forecast to increase by 3 per cent to 27.5 million tonnes, as clothing and textile production continues to expand throughout Asia. However, high cotton prices are expected to temper this growth as textile mills increase their use of cheaper man made fibres such as polyester, polypropylene and viscose rayon.
According to recent mill surveys there is a sustained shift in fibre use away from cotton toward synthetic fibres. In China, increased production of raw materials used in the production of polyester staple has lowered the cost of polyester. Reflecting this greater availability at lower prices, consumption of polyester in China increased by 11 per cent in 2006 to 6.1 million tonnes — 53 per cent of global polyester consumption.
Cotton consumption in China is forecast to increase by 7 per cent in 2007-08 to 11.5 million tonnes, down from an 11 per cent rise in 2006-07. This slowing in the rate of growth reflects the greater use of synthetic fibres in mills and reduced government support for clothing and textile production. Throughout 2007, the Chinese Government has implemented a number of policies aimed at controlling future growth in the clothing and textiles sector, including: tightening the deposit requirements on domestic lenders and reducing export tax rebates on textiles.
Elsewhere in Asia, differing labour costs are resulting in an ongoing redistribution of global textile and clothing production. According to the Werner International 2007 report on primary textiles labour cost comparison, labour costs in coastal areas of China are around US$1.00 an hour, compared with US$0.22 in Bangladesh, US$0.29 in Viet Nam and US$0.36 in Indonesia respectively. Reflecting this slow shift in production, raw cotton use in the latter countries is forecast to increase by 4 per cent in 2007-08 to 1.2 million tonnes.
Australian cotton production in 2007-08 declines further
Continued dry conditions in most water catchments throughout spring and low water storages have severely reduced water available for irrigated cotton in 2007-08. All irrigated crops in the Namoi Valley, for example, are expected to be grown with groundwater supplies, as a result of low storage levels in the Keepit and Split Rock dams. In addition, much of the remaining water available for irrigation is being used by producers to finish high value winter crops and plant summer grain crops such as sorghum.
Reflecting the difficult water supply situation, the area planted to cotton in Australia is forecast to fall by 61 per cent in 2007-08 to 56 000 hectares. The reduction in the area planted and likely lower yields than in the previous season are forecast to result in Australian production of cotton lint falling by 62 per cent in 2007-08 to around 103 000 tonnes.
