The global cotton business should start to recover as the recession which decimated demand for the fiber begins to gradually lift, said a senior official of the cotton unit of commodities firm Olam International. Cliff White, the Dallas-based senior vice president for marketing of Queensland Cotton, told Reuters in an interview late Monday that supplies should begin to tighten "as countries cut down their production."
"Therefore, we will see over the coming year, a tightening in that supply/demand situation," he said. "I wouldn't say (the recession is) starting to wind down, but clearly I think there is a bit of light at the end of the tunnel as we get into the second half of next year in particular." Industry analysts have said that with cotton plantings expected to fall again this year, the expansion in stocks should finally come to an end and be drawn down.
For now though, cotton prices have lost a lot of ground as demand stumbled during a recession. Cotton prices which hit as high as 92 cents per lb in the spring of 2008 have plunged since to trade around 48 cents in early 2009 as the weak demand took its toll.
In a report last month on Cotton World Markets and Trade prepared by the US Agriculture Department's Foreign Agricultural Service, it said the weakening economic outlook has prompted major producers China and India to take measures to prop up domestic cotton prices in order to maintain farm income.
"These measures combined with China's existing state reserve, could put over 20 percent of global production in state-controlled stocks by early spring," the USDA said. China has already announced the purchase of over 12.5 million (480-lb) bales for the state reserve and India could hold up to 7.0 million bales under its own plan.
"Until these state-controlled stocks are drawn down, they will limit potential increases in world prices," the USDA explained. White feels the impact on cotton values should not be that severe. "I think what that does is streamline the supply of cotton because obviously they're not just going to release that cotton at discount prices," he said.