Global cotton production is expected to decline by three percent next season, while consumption may remain stable and ending stocks may be low.
However, analysts said China holds the key to prices as any drop in demand from the communist nation could limit further upside.
As a result, global cotton prices are expected to hover around US cents 80 per pound (₹52,600 per 356 kg candy) for the remainder of 2023.
According to the US Department of Agriculture (USDA), cotton production could decline to 114.1 million (US) bales (217.7 kg) next season due to lower crops in the US and Uzbekistan. Indian crop is also being estimated to be less. However, production this season is estimated to be higher at 118.3 million bales, with larger harvests in Brazil and Argentina.
Last month, the International Cotton Advisory Committee (ICAC) said production for the next season is estimated at 24.51 million tonnes (112.58 million US bales).
Research agency BMI, a unit of Fitch Solutions, said global cotton production next season is expected to be 116.5 million bales, down 0.9 percent from this season's 117.6 million bales.
"The decline in global output will be driven by year-on-year declines in Brazil (3.3 per cent), mainland China (12.1 per cent) and India (1.9 per cent)," BMI said.
3 reasons for the decline in production
This is because cotton acreage in these three countries is down due to “weak global prices, poor margins compared to other crops and concerns over fertilizer supply”.
Also, consumption is likely to pick up as mills are expected to replenish their low cotton stocks.
"Consumption rose to 116.9 million bales, largely due to strong consumption prospects in China more than offsetting lower utilization in Uzbekistan," the USDA said.
ICAC said consumption in the next season is likely to be 23.79 million tonnes (109.27 million bales). BMI said global consumption is expected to grow 5 percent annually to 116.4 million bales in 2023-24.
A slower year-on-year recovery in the US will be offset by a weaker economic outlook, with China's latest import data from June 2023 down 49 percent year-on-year due to production declines in Brazil, China and India and a reduction in planting area decline is observed
The USDA has projected the carryover stock for the next season to increase from 94.13 million bales to 91.59 million bales in view of the rising consumption.
In light of these developments, BMI said it is maintaining its 2023 cotton price outlook at 86.5 cents per pound (₹56,900 per candy), up from the year-to-date average of 82.7 cents (₹54,400).
"The US season-average farm price for 2023-24 is projected to be 79 cents per pound (₹52,000)," the USDA said.
Current price
ICAC forecasts the season-average A index for 2022-23 to range from 96.36 cents to 106.47 cents, with a midpoint of 100.78 cents per pound.
Currently, cotton futures are quoted at $85.10 cents (₹56,000 per candy) on the Intercontinental Exchange, New York. In India, export benchmark Shankar-6 cotton currently stands at ₹61,300, while raw cotton (cotton) at the Rajkot agriculture terminal market is at ₹7,925 per quintal.
As far as Indian production is concerned, the USDA estimates that it will come down to 326.58 lakh bales (170 kg) in the next season as against the production estimate of 333 lakh bales this season. Pakistan's cotton crop, battered by unprecedented floods last year, is expected to rise sharply to 6.5 million US bales next season, BMI said.
Import demand, especially from China, Vietnam and Bangladesh, will increase by 172 per cent to 43.4 million bales this season from 37.1 million bales.
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