■ With production likely to fall 11%, prices are poised to rally 15% by year end ■ Bets on price gains are increasing
Singapore/Chicago, Feb 12 Bloomberg
COTTON harvests are heading for the biggest drop in more than two decades as farmers from the US to India reduce planting and China increases demand for higher- quality imports. Crops will tumble 11%, the most since 1993, to 23.2 million metric tonne in the year beginning August 1, data from the International Cotton Advisory Committee show.
Farmers will reduce sowing to 31.58 million hectares(78millionacres),a 7.7% decline and the largest in 11 years, according to Washington based ICAC, which represents 41 governments. By July 2014, stockpiles will shrink 4.9% to 15.9 million tonne, the first reduction in four years, the group’s data show. Prices that slumped 62% from a record in 2011,prompting farmers to switch to soybeans and corn, are poised to rally 15% to 95 cents a pound by the end of 2013, according to the median of 16 estimates from analysts and traders compiled by Bloomberg. China is buying higher grade American and Australian fiber for textile makers at cheaper prices than domestic supplies and
sitting on lower-quality local stockpiles to subsidize farmers.
“China will want to import some cotton that the world doesn’t have to give next season,” said Peter Egli , director at Chicago-based Plexus Cotton.“Prices will have to go higher to satisfy mill demand and China imports,” he said in a telephone interview. Cotton advanced 9.8% to 82.52 cents this year on ICE Futures US in New York, the best performer among24rawmaterialsontheStandard & Poor’s GSCI Index . The commodities gauge climbed 5.1% and the MSCI All-Country World Index of equities rose 4.6%. Treasuries lost 0.8%, a Bank of America Corp index shows.
Money managers are gearing up for a rally. Bets on price gains in futures and options outnumbered wagers on declines by 59,138 contracts as of February5,the most since Oct.12, 2010, data from the Commodity Futures Trading Commission show. While global cotton output is tumbling, consumption will increase 3% as the world economy recovers, leading to a shortage for the first time since 2010, according to ICAC.
Farmers in Spain begin planting the first crops of 2013 this month. The U.S. will follow in March, then China, Egypt and Central Asia in April, South Asia in June, Australia and Argentina in September and Brazil in October, according to the US Department of Agriculture’s crop calendar. In the US, the world’s largest exporter, planting will slump 16% this year to 10.32 million acres, the least since 2009, according to the average of 13 analyst estimates compiled by Bloomberg.
Acreage may plunge 27% as farmers shift to more profitable crops, the Memphis, Tennessee- basedNationalCottonCouncilsaidonFebruary9. A farmer in Arkansas, the third largest cotton-growing state in US, can earn $385 an acre growing corn this year and $320 on soybeans, based on an analysis of prices and costs as of Feb.8bytheUniversityof Arkansas division of agriculture.
Even after a rally in prices this year, cotton would fetch only $200 an acre, according to the December study of surface- irrigation farms, the most common type in the state. The figures exclude land costs, including rent. Cotton production in Texas, the top-growing US state, will decrease in 2013 as year-long drought conditions that prevented grain planting begin to lift in some regions, said Darren Hudson, the director at Texas Tech University’s Cotton Economics Research Institute.
“If we don’t have a drought to keep yields down, we’re going to flood the place with corn,” Hudson said in a phone interview from Lubbock, Texas.“Producers are looking at corn and grain sorghum as those prices are attractive.” Upland cotton planting in the western high plains of Texas, a dry area, will probably fall to 3.7 million acres from an estimated 4.2 million acres the year before, according to Steve Verett, executive vice president at Plains Cotton Growers, a group in Lubbock representing morethan1,000 producers.
In Australia, the fourth-largest shipper, sowing will tumble by 19% for next crop, while in India are a will drop 7%, the ICAC estimates dated February5show.Farmersinallseven top shippers, including Brazil, Uzbekistan, Greece and Burkina Faso, will reduce plantings, shrinking the acreage to the smallest in four years, the data show. These early estimates for 2013-2014 are revised every month, ICAC said.
Growth in China, the second largest economy and the top cotton user, will accelerate to 8.3% in the third quarter after ending a two year slump in the last three months of 2012, estimates from economists compiled by Bloomberg show.
Chinese imports jumped 75% in December from the previous month to 532,177 tonne, a third monthly gain and the longest run of increasessinceSeptember2011, customs data show. Foreign purchases will reach 3.05 million tonne in the year throughJuly,12%morethanthe2.72 million tonne predicted in January, theUSDAsaidFebruary8. Retail sales of garments, footwear and textiles in China advanced for a fifth straight month in December, the longest expansion in almost two years, statistics bureau data show.
“Textile makers, especially those of us who are export-focused, have little choice but to use machine- picked high-end imported raw material, ”KongJia ,a manager at Hebei Xindadong Textiles Printing & Dyeing Co., said by phone from Shijiazhuang in north eastern China. “The government is trying to offload part of the huge stockpiles, but textile makers aren’t enthusiastic about buying that cotton because the quality and price aren’t attractive.” Bloomberg (Source: Financial Express)