Cotton prices low, for now
Playthings Staff -- Gifts & Dec, June 17, 2002
With world cotton supply still sharply exceeding demand — in spite of reduced plantings and steadily smaller crops in some parts of the globe — cotton prices so far this year are running almost 25 percent beneath year-ago levels, averaging about $0.43 a pound, down from $0.57 a year ago.
But the gravy train won't keep running forever, cotton producers caution, and U.S. textiles producers can expect to start paying more for their basic raw materials next year as supplies keep tightening — production falling as much as 10 percent — pushing prices back up to an estimated $0.53 a pound, according to the latest monthly forecast of the International Cotton Advisory Committee (ICAC), a consortium of 43 cotton producing countries.
"Although production in the Southern Hemisphere dropped by over 500,000 tons, or 23 percent, in 2001/02, overall world production increased by 1.8 million tons to reach a record of 21.2 million tons, outpacing world consumption by 1.3 million tons," the cotton cartel reported. With two months left in the current cotton season — the cotton year runs from September through August — the average price of cotton through the past 10 months is $0.41 a pound, with a $0.43 average likely for the entire year.
That's the lowest price recorded in almost three decades, since the 1972/73 cotton year. And measured in real terms, taking inflation into consideration, "cotton prices are probably the lowest since the cotton gin was invented in 1793," said cotton growers
What's been a boon for manufacturers, the ICAC pointedly observed, has been a bane for cotton growers. "The level of pain caused to producers and export-dependent countries by the collapse of cotton prices is particularly severe." Illustrating just how much pain cotton growers have been suffering, the ICAC said the aggregate value of world production this year is estimated at $20.1 billion, down $4.4 billion from last year, even though world output increased by 9 percent.
Collapsing prices have caused cotton growers to cut back on planting in a bid to align supply more closely to demand and drive cotton prices higher. Indeed, the world cotton producing area next year is estimated at 32 million hectares, down about 4 percent from this year, said the ICAC. And world cotton production is expected to decline by almost 10 percent, or 2 million tons, to 19.2 million tons next year.
While production is slowing, consumption is picking up, putting further upward pressure on cotton prices. After remaining flat at 19.8 million tons for the past two years, world consumption of cotton is increasing about 100,000 tons this year, slightly less than 1 percent, and is forecast to climb by another 2.5 percent, or half a million tons, next year, said cotton growers, climbing to a record level of 20.4 million tons.
With supply and demand coming into better balance, and China, one of the world's largest growers, exporting more cotton, cotton prices are now forecast to climb to an average of $0.53 a pound next year, up about $0.10 a pound, or 23 percent, from this year, said the consortium of cotton growing nations.
World cotton supply and pricing forecast
(in millions of tons, except for cotton prices)
|Source: International Cotton Advisory Council (ICAC)
|Cotlook A Price Index||$0.57||$0.43||$0.50|
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