The US government has raised its 2012/13 forecast for global cotton inventory to above 80 million 480-pound bales for the first time due to growing output in the United States, the world's third largest producer, and falling demand from China, the world's largest consumer.
While analysts and traders expected the increase, surpassing the 80 million mark is likely to reinforce concerns about rising supplies and long-term demand as mills use more man-made fibers. It will also heighten uncertainty about the Chinese government's stockpiling strategy.
In its monthly crop report, the US Department of Agriculture increased its estimate for 2012/13 ending stocks for a fourth straight month to a new all-time high of 80.27 million bales. The new forecast is up from 79.11 million last month, and 15 percent higher than 2011/12 levels. It was largely driven by a 500,000-bale rise in global output, due to increases in the United States, Uzbekistan and some African countries, and the same-sized drop in consumption, mainly due to China.
Tentative fears that superstorm Sandy, which battered the US East Coast at the end of October, had damaged crops in Virginia and North Carolina appeared unfounded. The unwelcome rains and wind could have damaged crop quality as US farmers continue their harvest, but the government raised its estimate for US output by almost 1 percent to 17.45 million bales and hiked its inventory forecast by 3.5 percent to 5.8 million bales.
"The cotton reports were negative with the United States and bearish with the world," said Sharon Johnson, senior cotton specialist at Knight Futures. While a global carryover for 2012/13 of over 80 million bales is alarming to growers and traders, almost one-half is expected to be held in China's massive strategic reserve, where it is effectively removed from the open market, analysts say.