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Cotton Prices, Production and Consumption on the Rise

Cotton prices climbed in April and first forecasts for the 2016/17 season point to substantially higher production.

The seven-market U.S. average cotton spot price increased $0.035 last month to just over $0.59 cents per pound, according to the U.S. Department of Agriculture (USDA). The number was up from March’s $0.57, but down from $0.63 in April 2015.

Farmers pulled in an average of $0.55 per pound for Upland cotton, a dip from February’s $0.57.

Looking forward to the 2016/17 season, USDA said cotton production will be “substantially higher,” and consumption will also increase, but at a more muted pace. Despite the projected rise, the coming season is expected to be the second in a row of declining global stocks.

“Nearly the entire decline in stocks is forecast to occur within China, as reserve sales in the upcoming year and recovering mill use lead to a 6.6 million bale reduction in stocks,” a USDA report noted. “Outside of China, stocks are expected to rise slightly after a year when stocks in many major exporters, other than the United States and Australia, have become very tight. Global trade, meanwhile, is expected to slacken slightly as Pakistan’s production recovers and China’s reserve sales continue, while growth in major importers such as Vietnam and Bangladesh slows slightly.”

Sustained growth in Vietnam and Bangladesh is helping the consumption recovery, as is a resumption of growth in China. Lint prices in China will stay well below the high levels of recent years because of ongoing reserve sales and current domestic cotton support policies.

“Meanwhile, slower growth in other major consuming countries is a corollary of faster growth in China, as Vietnam in particular is expected to spin less yarn for export to China in 2016/17,” according to the USDA.

The same poor conditions that reduced yields in Pakistan, India and the southern U.S. in the current year aren’t expected in the coming season. For smaller producers, like Egypt, Turkmenistan, Turkey and parts of West Africa, production forecasts point to more favorable conditions.

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“This higher forecast production, alongside supplies made available from China’s state reserve, is expected to pressure world cotton prices in 2016/17 and therefore enable more yarn spinning,” USDA noted.

Consumption is expected to increase in China after six straight years of decline, though rates of growth will be slower than in recent years. Vietnam, Bangladesh and Pakistan are also expected to see consumption growth, while use will fall in Brazil, Indonesia and Syria.

For global trade, USDA slashed projections for China’s imports by 750,000 bales to 4.3 million, dropped Vietnam’s 400,000 to 4.8 million on slowing shipments and weaker yarn demand from China, and hiked Pakistan’s projections by 200,000 bales to 10.3 million on continuing “robust” shipments from India. The U.S. is expected to export 500,000 fewer bales to 9 million on weak recent sales.