These are topsy-turvy times for the global cotton industry.
A new report from the International Cotton Advisory Council (ICAC) projects the 2018-19 cotton crop season to see a 3 percent decrease in production, a 3 percent increase in consumption and a 10 percent decline in global stocks. This would bring the world’s cotton reserves down to a level not seen since the 2011-12 season.
The global stocks-to-use ratio is expected to drop to about seven months of mill use. The decrease in global stocks will primarily come from a drawdown in China’s warehouses, ICAC said. From March through August, the Chinese State Reserve sold more than 2 million tons of fiber, reducing stocks to roughly 8.6 million tons.
ICAC said if production and consumption remain at current projected levels, the 2018-19 season is expected to reduce stocks in China to 6.6 million tons, representing a 23 percent drop.
Outside of China, stocks are trending in the opposite direction, with a 24 percent rise in 2017-18 to 10.1 million tons. The increase is forecast to slow this season, with a slight gain to 10.2 million tons. By the end of the season, warehouses outside of China are expected to house close to 61 percent of the world’s global reserves.
“Ending stocks in China reflect growing mill use in China and may signal the possibility of increased imports in 2018-19,” ICAC said. “Growing global demand in 2018-19, despite uncertainty about trade policies, may lead to price increases amidst a possible global production decrease.”
Spot prices for U.S. cotton averaged 79.19 cents per pound for the week ended Aug. 30, according to the U.S. Department of Agriculture (USDA). The weekly average was up from 78.73 cents a week earlier and from 69.05 cents a year ago, USDA noted.
The Cotlook A Index of global prices is forecast to average 88 cents a pound for this season, the ICAC report noted, compared to 95 cents a pound in the 2017-2018 season. The index stood at 92.55 cents a pound on Wednesday.