A pick-up in global cotton consumption and tighter global stocks outside China means lower-than-expected production in the United States could easily revive prices, the head of Allenberg Cotton, the world's largest cotton merchant, said on Thursday. Tight available supplies world-wide means a change of just half a million bales, either in reduced production or increased exports, could cut stock levels to the second lowest in history, said Anthony Tancredi, Allenberg Cotton's chief executive.
"The drought index is all bad for Texas so there's a good chance we see more problems in Texas than we're going to get crop gain anywhere else," he said at an industry conference in China. Benchmark cotton prices on ICE Futures are hovering near 3-month low as the fibre has come under pressure from a slowdown in buying and declining global markets.
But a deepening drought in the United States could hit this year's crop and tighten global supplies. Already, US growers are expected to plant the smallest cotton crop since 2009 this year, according to forecasts by the US Department of Agriculture. While the USDA has forecast global cotton stockpiles to rise almost 10 percent to a record high in 2013/14, more than half of the estimated 93 million is locked up in China's state reserves, Tancredi said.
With Beijing's farming subsidies keeping domestic cotton prices some 40 percent higher than global benchmark rates, the amount of available supplies was actually fairly tight since there was little incentive for China to export the fibre, he said. The USDA has said in its May report that excluding China, the world carryover was estimated at 36.1 million bales, the lowest since 1994/95. "We know the competition has reduced exports a lot. We know the global free stocks outside China are tight. We know global cotton demand is rising," Tancredi said.
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