At the beginning of 2012, website Agrimoney.com reviewed various projections for the short-term future of global cotton markets. It noted that following a near doubling of prices in 2010, cotton prices peaked at 227 US c/lb in March 2011, before losing 37% of their value to the end of the year. This made cotton the worst performing agricultural commodity in 2011. This was attributed by the International Cotton Advisory Council to an 8% increase in world production (to 26.8 million tonnes) in the context of a 2% fall in global cotton consumption (to 23.9 million tonnes). Nevertheless, in historical terms cotton prices remained high at about 95 c/lb.
According to Commerzbank analysts, with a significant supply surplus projected for 2012 (+2.6 million tonnes, following a 2-million-tonne contraction in demand), no return to March 2011 prices is foreseen. However, strong Chinese demand is expected to prevent any further price reductions: Chinese state purchases of cotton are currently paying 140 c/lb to domestic producers.
Analysts at Morgan Stanley ‘see cotton prices coming under further pressure through the first half of 2012’, with an average 2011–12 price of 100 c/lb, falling to an average of 80 c/lb for 2012–13. They foresee ‘weaker lower cotton prices limiting planted acreage in 2012-13’, maintaining that this will result in a flat year-on-year harvest, ‘with lower US abandonment rates preventing a more pronounced year on year decline’.
Rabobank analysts’ projections are even more pessimistic than Morgan Stanley, with prices projected at 80–85 c/lb throughout 2012, which is being attributed to a growing use of synthetic fibre in China.
Analysts at Standard Chartered foresee slightly more favourable price trends than the Commerzbank, at between 100 and 115 c/lb.
Forecasts of New York cotton price for 2012 (US cents per lb)
|2012 Q1||2012 Q2||2012 Q3||2012 Q4|
|Average 2011–12||Average 2012–13|
More broadly, the USDA projects a further 2.5% decline in global cotton consumption in 2011/12 following a 4% decline in 2010/11, following the exceptionally high cotton prices, and notes that demand trends in China are likely to play a major role in global cotton price formation in the coming years. However, it also notes that in the face of severe drought in the south-west, US cotton production is set to decline by 12.5%. In this context, while global cotton exports are expected to increase 3%, US exports are projected to decline 21% in the coming year.
USDA projects that global ending stocks will increase 27% to 57.7 million bales. This reverses a previous trend, when declining production and rising consumption saw stocks plummet for two consecutive years. The global stocks-to-use ratio is now estimated at 52%, with this underlying situation largely accounting for the decline in cotton prices.
As in recent years, China will largely dictate the cotton market in 2012. The latest customs statistics show that Chinese imports of cotton grew by 71% in December 2011, compared to December 2010, to 790,400 tonnes. Imports in 2011 grew by 19%, to a total of 3.36 million tonnes. China is also due to issue a new import quota of 1.1 million tonnes. This factor should support the markets in New York, which should therefore fall less than forecast, thus reducing the downward trend noted in USDA’s report of 12 January for cotton supply and demand in 2011/12. USDA duly increased closing stocks to 58.35 million bales. In addition, the China Cotton Association has indicated that the area under cotton is likely to fall by 10.5% in 2012 in comparison to 2010, to 5.2 million hectares. US farmers are also likely to plant less cotton in 2012.
Even in the analysts’ lowest forecasts, cotton markets remain high. Over the decade 2000, prices have often been below 60 US c/lb. At the current level, as well as those forecast by the analysts, the African companies in the franc zone will turn a profit for the third season in a row. Depreciation of the euro against the dollar is also a positive factor.