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Cotton Prices to Drop in Second Half of 2017 on Increased Supply

cotton pixabay

World cotton production is expected to rise 8 percent in the 2016-17 season and the resulting pressure could push cotton prices down.

In a report released Tuesday, the International Cotton Advisory Committee (ICAC) said the season average Cotlook A Index cotton price will range between 66 cents and 83 cents per pound.

The current season saw ending stocks down 21 percent—owed mostly to shrinkages in Southern Hemisphere countries—and the short supply kept prices firm. But now that world cotton production is projected up 8 percent to 22.8 million tons, prices are expected to fall in the second half of the year.

“With the exception of China, cotton production is projected higher in the top five producing countries,” ICAC said.

India’s cotton production is projected to climb 4 percent to just under 6 million tons, making it the world’s largest producer of the fiber. China’s cotton production is down 4 percent to 4.6 million tons, while production in the U.S. could jump as high as 28 percent to 3.6 million tons.

“Additionally, cotton production in the Southern Hemisphere, primarily Brazil and Australia, is expected to rise by 21 percent to 2.8 million tons, which could put pressure on prices through the end of 2016-17 to the start of the next season as both countries are also large exporters,” ICAC said. Production in Brazil is expected to increase 10 percent, while Australia could produce as much as 64 percent (to 1 million tons) more cotton thanks to more plantings from farmers who were banking on the fiber’s high prices.

World cotton consumption will likely stay stable at 24.1 million tons. China will still be the largest consumer, taking in roughly 7.4 million tons. In Bangladesh and Vietnam, where apparel production has been on the upswing, consumption is forecast to grow. Bangladesh should see cotton consumption up 5 percent to 1.3 million tons and Vietnam is projected to have 13 percent growth in cotton consumption to 1.1 million tons.

“While prices for polyester, the main competing fiber, have risen in recent weeks, they still remain well below international cotton prices, making it unlikely that cotton mill use will expand this season unless polyester prices continue to rise,” according to ICAC.