Can cotton markets overcome Chinese government sales in 2017?
Cotton prices finished 2016 up nearly 12%, after surging on resilient Chinese demand, despite government auctions of stockpiled supply, which ate into import demand
But markets have been moribund since August, thanks to heavy supply, with a very big US crop.
Will markets find any bounce next year, or will continued selling in China, as well as an expected rise in US cotton planting, weigh on markets?
Investors give their views to agrimoney.
New York cotton futures are forecast to gain marginally in 2017, after a period of short term harvest pressure, moving toward 71 cents a pound by the last three months of 2017, as heavy global stocks are further tightened, driving a global supply deficit for the third consecutive year.
As a result, we anticipate global stocks of 80 million bales in 2017-18, reducing China’s global share to 50 %, from 60 % in 2013-14.
However, expect the competing nature of man-made fibre – particularly polyester- and slow demand to cap rallies to 72 US cents a pound in April to June 2017.
China’s reduction in reserve stocks is expected to continue, with both government auctions and policies to limit imports, driving a projected 9.7 milliion bale stock reduction in 2016-17 and 10 million bale cut in 2017-18.
US acreage expansion will again feature in 2017-18, production is expected to meet some 17 million bales in 2017-18, up from 16.2 million bales this season.”
We expect US cotton acreage to increase by at least 5 % in 2017-18, as cotton has become more profitable for US farmers due to a decline in the cost of production and stable prices.
The US stock-to-use ratio will increase from 33 % in 2016-17 to 41 % in 2017-18, we estimate, while Indian cotton acreage should recover at least 7 % in 2017-18.
We expect the global stock-to-use ratio, excluding China, to increase from 50% to 53%, in line with the USDA’s estimate.
The global stock-to-use ratio should be 79 % in 2016-17, with China still holding more than a year’s worth of inventory.
The stocks should still be higher than in 2007-08 and 2008-09, when cotton averaged 60 US cents a pound, but lower than in 2014-15 and 2015-16, when it averaged 64 US cents a pound.
This should put moderate downward pressure on cotton prices.
Focus on economics
The price was 10.6 % higher than on the same day last year.
As demand is projected to remain stable and harvests are expected to be less abundant, prices are seen rising.
Analysts forecast that prices will average 71.1 US cents per pound in the last three months of 2016.
In last three months of 2017, panellists expect prices to remain stable and average 71.1 US cents per pound.