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World cotton consumption to jump to a record 96.2 million bales

As the 2001/02-crop year winds to a close, the USDA’s July report offers a first glimpse of country-specific cotton supply and demand for 2002/03. The world and US markets are expected to see lower production and increased demand in the next marketing year, resulting in lower ending stocks in both markets. Echoing the USDA’s lower plantings estimate released in June, domestic production is forecast to decline to 17.5 million bales, a drop of 13.8 per cent from the current year’s record crop.

Exports are forecast to shrink 200,000 bales from this year’s near-record 11.0 million bales to 10.8 million, reflecting lower export sales for next season compared to this point last year. With the decline in production offsetting the decline in demand, ending stocks are forecast to decline 100,000 bales to 6.6 million, marginally tightening the stocks-to-use ratio to 35.5 per cent from 35.6 per cent in June.

For the current marketing year, world production is estimated to drop 200,000 bales to 98.0 million. Yet consumption estimates are expected to rise 400,000 bales during 2001/02 primarily due to increased mill use in China. For 2002/03, production is forecast to remain near 91 million bales, a decline of 8.3 per cent from the record level reached in the current marketing year.

Diverging with world production, consumption of cotton is anticipated to jump to a record 96.2 million bales in the new marketing year, reflecting strong year-over-year increases in China (800,000 bales), India (400,000), Pakistan (300,000), Turkey, and the United States (200,000 bales each). With world consumption accelerating past production, ending stocks (excluding China) are predicted to decline almost 2 million bales from this year to 31.2 million, tightening next year’s projected stocks-to-use ratio from 48.2 per cent seen in 2001/02 to 44.3 per cent.

After trading in narrow sideways patterns over most of the last six months, both the New York nearby price and the ‘A’ Index broke free of resistance levels and strengthened appreciably in the last several weeks. In late June, the New York nearby enjoyed a ‘limit-up’ trading day, rising 300 points and closing above the ‘A’ Index, the first time in over 18 months for either event. Accordingly, the gap between monthly values of the Nearby and the ‘A’ Index narrowed to its smallest difference since December 2000. Consequently, the pace of US export sales has waned over the last several weeks, as quotes for US growths have appreciated against prices for foreign cottons. This price convergence calls into question the likelihood of US exports reaching 10.8 million bales in 2002/03. Should this level not be realized, sustained strengthening in price will rely on crop condition reports and any resurgence in domestic mill use.

Presently, US outstanding export sales for 2002/03 stand at only 71 per cent of year-ago levels and current-year outstanding sales able to be carried over to the following marketing year are below last year’s level. World trade in cotton is expected to rise over 1.5 million bales to 30.7 million, the highest in 13 years, effectively increasing the market for US cotton exports. Combined with a weaker dollar than seen last year and forecasts for foreign consumption to outpace foreign production, sustained price strengthening rests on the shoulders of exports and the anticipation of large consumers including China and India returning as large importers in the new marketing year.

Source: www.cottoninc.com