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ICAC Forecasts Soft Cotton Prices Ahead

Cotton prices are expected to be uncertain in the 2017-18 season.

The International Cotton Advisory Committee forecasts that the A Index international average of cotton price futures in 2017-18 will range between 54 cents and 87 cents a pound, with a midpoint of 69 cents a pound.

That midpoint would be 13 cents a pound lower than in 2016-17 and follows a large increase of 12 cents a pound from 2015-16 to 2016-17, which suggests that such a drop is not unreasonable.

The U.S. Department of Agriculture’s report for the week ended July 27 showed spot prices averaged 66.58 cents per pound, which was up from 65.94 the prior week, but down from 71.37 cents a year earlier.

The ICAC said the season-average A Index in 2016-17 ended up being much higher than the initial forecast and market fundamentals don’t explain why this occurred.

“Given what happened in 2016-17, it is difficult to say whether the current forecast for 2017-18 will hold up well over the season,” ICAC stated.

In 2017-18, world cotton production is projected to increase 8 percent to 24.9 million tons due entirely to an 8 percent expansion in world cotton area to 31.7 million hectares, which is below the 20-year average of 32.7 million hectares. The world average yield is forecast at 785 kilograms per hectare.

India is expected to remain the world’s largest producer, with output increasing 6 percent to 6.1 million tons. After falling 6 percent in 2016-17, China’s production is projected to rebound 7 percent to 5.2 million tons. Production in the U.S. is expected to rise 10 percent to 4.1 million tons, as high prices, sufficient soil moisture in dry land areas and beneficial weather during planting encouraged farmers to expand cotton area 18 percent to 4.5 million hectares.

[Read more about U.S. cotton production: Politicians Join Cotton Growers in Urging Trump to Renew Cost Share Program]

After two seasons of contraction, better than expected returns for cotton encouraged farmers to expand cotton area in Pakistan by 9 percent to 2.7 million hectares. Assuming the average yield rises 8 percent, Pakistan’s production is projected to increase 17 percent to 2 million tons, which is similar to its 15-year average.

Cotton production in Brazil is forecast to increase 5 percent to 1.6 million tons, as high returns in 2016-17, resulting partially from a 17 percent increase in the average yield, are likely to encourage farmers to expand cotton area.

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World cotton consumption is forecast to rise 2 percent to 25 million tons. A modest 1 percent increase is projected for China, the world’s largest cotton consumer, with its mill use reaching 8.1 million tons. After declining 3 percent in 2016-17, consumption in India is forecast to increase 2 percent to 5.3 million tons. Pakistan’s mill use is expected to rise 4 percent to 2.2 million tons, which follows a 13 percent decrease in mill use in 2015-16 and stagnant growth in 2016-17. Consumption in Bangladesh is projected to rise 5 percent to 1.5 million tons on strong demand domestically and internationally, and Turkey’s mill use is expected to remain stable at 1.5 million tons.

World cotton trade is projected to decline 1 percent to 7.8 million tons. While the U.S. is expected to remain the world’s largest exporter, its exports are still forecast to decrease 8 percent to 2.9 million tons. India’s exports are forecast to rise 2 percent to 930,000 tons and Australia’s exports are projected to increase 8 percent to 760,000 tons. Bangladesh, Vietnam and China are expected to remain the world’s three largest importers. Bangladesh’s imports are projected to increase 7 percent to 1.5 million tons, Vietnam’s by 5 percent to 1.3 million tons and China by 4 percent to 1.1 million tons.

World ending stocks are projected to decrease 1 percent to 18.8 million tons, with increases outside of China offset by decreases in China’s stocks. China’s stocks are expected to decline 16 percent to 8.9 million tons. Ending stocks outside of China are forecast to grow 19 percent to 9.8 million tons.