Cotton woes pile up

Cotton price is still down, and the global acreage is likely to follow suit. China´s warehoused cotton poses quality problem but in the medium-term, there could be reliefs with the demand for cotton from countries like India going up.
Low cotton prices persisting through the rest of 2014-15 are expected to result in a 6 percent decrease in world cotton area in 2015-16, according to a International Cotton Advisory Committee report. Cotton production is expected to fall by 6 per cent, while consumption is expect to increase by 2 per cent, marking the first time in five seasons that consumption may overtake production. In 2015-16, cotton is likely to be much less attractive to plant due to falling cotton prices. This is how the global cotton & cotton-based industry feels.

According to Dr OA Cleveland, professor emeritus at Mississippi State University, most of the prices being talked about on the eve of the 2015 season are below the cost of production for many of the nation´s cotton growers. The US cotton acreage could decline to 9.4 million to 9.8 million acres in 2015. World cotton acreage could decline 10 per cent in 2015 season.

Early forecasts are saying US cotton plantings could fall by at least 10 per cent from 2014´s 11.01 million acres. Bloomberg and other media surveys have put planting intentions at 9.7 million acres, while Informa Economics is forecasting 9.4 million acres. The Mato Grosso area of Brazil, one of that country´s major producing areas, could be down by as much as 12 per cent to 12.5 per cent.

Australia´s cotton acreage is down as much as 45 per cent this year, primarily because of water availability. Dr Cleveland is projecting cotton plantings in China to be down 13 per cent because of the uncertainty surrounding China´s cotton policies. Price is not as much of an issue in China with the Government supporting prices at the equivalent of $1.46 per pound, but China´s huge reserves of cotton may lead the government to de-emphasise cotton production.

With acreage being reduced around the world, Dr Cleveland is projecting the 2015-2016 world crop at between 106 million and 108 million bales. That could put world production more on a par with consumption ´ if consumers do their part. ´With oil prices coming down consumers will have more money in their pockets, and that tends to be very positive for cotton,´ he said. ´We´re seeing the same effects in all of Asia with respect to the impact of falling oil prices and consumer income. It´s giving the consumer more money, it´s giving the government more money, and it´s providing a more stable situation for governments and consumers.

Dr Cleveland acknowledged the December USDA World Agricultural Supply and Demand Estimates report lowered the consumption forecasts in major importing countries like China, India, Turkey and Pakistan. China´s consumption potential continues to be a mystery, given the nearly 60 million bales it is believed to be holding in its reserves and the shifting of yarn production from China to countries with cheaper wages.

´The idea is that China is a recipe for disaster or a disaster waiting to happen,´ he said, referring to the focus on the reported size of China´s cotton reserves. ´We have been far too slow to recognise the quality problems they have with those stocks. ´They are releasing stocks from their reserves, and the textile mills are finding they are having trouble running some of those bales. Yet they run them in yarn, and they find apparel folks are not liking the yarn. There are too many problems, too much contamination in the cotton they didn´t realise was there.´ As a result, the Chinese mills will need US, Indian, Australian or Brazilian cotton to mix with the cotton that has been sitting in warehouses or in the open for five or six years to produce an acceptable product.

´They (the Chinese government) had initially said they were not going to acquire any mo