World cotton prices seen in fundamental shift up

World cotton prices are headed for a fundamental breakout to back above 90 US cents a pound, a leading international expert said on Wednesday. This would come as international production declined and stocks in the United States, the world's biggest exporter, shrank from more than 10 million bales last year to virtually disappear by 2010, said Ed Jernigan, managing director of FC Stone Asia.
FC Stone is a leading commodity risk management and research group and owner of Globecot, the world's largest cotton research and consulting group. "They're very close to the bottom. I see no more than 65c on the downside, maximum," Jernigan told Reuters on the sidelines of the Australian Cotton Conference.
On Tuesday US cotton futures rose 1.02 cent to 69.76 cents per lb, having lost a quarter of their value since briefly peaking above 90 cents in a broad-based commodities rally in March.
The March spike followed years of low cotton prices after a collapse from above 100 cents a lb in 1995, as global production outpaced demand. US cotton stocks would fall to 3.2 million bales in 2008/09 and to 1.0 million bales or less by 2009/10 as production declined, Jernigan said. "It is gone," he told the conference. "It's the end of the US surplus."
Food crops had been taking growing areas from cotton world-wide because of demand for protein in China and India, the rise of biofuels and constraints on water supplies with climate change, Jernigan said. High and rising prices for fuel and fertiliser were adding to this, with cotton already less profitable to grow than corn, soybeans and wheat. "At current levels there is little incentive anywhere in the world to grow cotton," he said.
Declining production in the United States would be added to by shrinking output in central Asia, a major producing region, because of diminishing water supplies with climate change, inadequate investment, and a greater need for food crops. As this occurred India, presently the world's second biggest producer, would replace the United States as the world's largest producer and exporter, he said.