Report: Bright Future For Cotton
21 September 2007 As global demand shows few signs of slowing, the reduced US supply may help drive prices up. The report notes that global cotton is likely to remain around the same area in the 2007/08 crop year, which is similar to the last two years, while global yields fall slightly. Since demand is expected to continue to rise, prices should turn upward.
In the US, cotton acreage is forecast to decline for the 2007/08 crop year by around 20% as growers switch to corn and grains to take advantage of higher prices. In China, however, higher prices have attracted more farmers to the crop, while India and Pakistan are also seeing improvements in production. Additionally, Brazil has the greatest opportunity to increase area, with vast tracts of land that can be developed and adequate water supplies, although competition from high grain and oilseed prices may dampen this, the report states.
"The forecast fall in cotton acreage in the US is a reflection of the current gap between low cotton prices and higher prices of alternative crops, as a result of the ethanol-driven rise in corn prices and the flow-on effect of other grains," said Rabobank Food & Agribusiness Research Vice President Michael Whitehead.
Still In Demand
While supply has slipped, demand has not. Driven by the growing global per capita income increase, cotton consumption is forecast to rise approximately 4% during the 2006/2007 crop year, but will slow to about 2% for the 2007/2008 crop year.
China will be the main consumer of cotton, with India and Pakistan on similar paths. Chinese mill use will grow by approximately 9% before tapering off to 5% in the 2007/08 crop year. In India, the increase will be about 10% before settling at 5%, while in Pakistan, cotton consumption will grow 2% in the 2007/08 crop year, Rabobank reports.
"Economic growth in developing nations will continue to drive consumption. Not only does clothing account for a greater share, but as consumers earn more they are more likely to include cotton in their purchases," said Whitehead.
"While the 2008 global stock-to-use ratio is forecast to fall to around 38%, the lowest figure since 1993, the changes in sector structure and global circumstances should mean that the historical production surges and subsequent price slumps are not repeated," said Whitehead.
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