What is in this article?:
- Cotton industry needs global production deficit
- Cotton prices: two factors
- The world needs to produce a deficit in cotton production next year, to avoid a third straight year of record stocks.
- Higher cotton prices have added to consumption woes, as textile mills have resorted to blends with higher percentages of cheaper polyester.
- Two factors keeping cotton prices relatively high are Chinese government policies and the recent spike in corn and soybean prices.
The world needs a deficit in cotton production in 2013-14 to avoid building record stocks for a third straight year, says Allenberg Cotton Co., CEO Joe Nicosia.
Speaking at the Southern Cotton Ginners Association 2012 summer meeting in New Orleans, Nicosia said the cotton market is in “disequilibrium,” with world production having exceeded demand for two years in a row. The result – world ending stocks are expected to be around 72 million bales by the end of the 2012-13 marketing year, the highest ever.
“We have to get in sync between production and consumption,” Nicosia said. “We have gone through extreme and drastic disequilibrium, and it’s caused volatility in prices. In 2009, we had a huge production deficit. In 2011-12, it reversed itself. We’ve gone from extreme deficits to extreme surpluses in a very short period of time.”
A number of factors have contributed to the fundamental disparities including significant average cotton yield increases over the last decade or more and lost demand to man-made fibers, according to Nicosia.
“We’ve seen a giant boom in average yields, 36 percent over the last 20 years. It was really led by India, although the United States has had big yield increases too. It allowed the production in the world to take a big leap forward.”
For a while, cotton consumption had been rising by an even greater amount. But as world economies have faltered over the last four years, the rate of consumption increase has fallen and is now only 24 percent over the 20 year time period. In real numbers, cotton consumption has dropped from a high of 120 million bales before economic troubles set in to just under 107 million bales recently.
High cotton prices have added to the declines because mills have lowered the percentage of cotton in their blends, Nicosia said. “Lost demand has been a big thorn in the cotton industry’s side recently. This pessimism in demand for cotton hasn’t stopped yet. Maybe we’re getting close. In July, we finally had an uptick in consumption.”
While dollars spent on apparel sales have gone up in recent months, “the number is very deceiving,” Nicosia said. “Cotton use has actually gone down 4 percent, while man-made fiber use is up two percent. This is one of the problems causing us to build stocks. Currently today, we are not optimistic that cotton is going to come back in and get its share back from polyester. From what we see around the world, the consumer may prefer cotton, but he’s not buying it. Therefore, it’s been much more difficult to get cotton blends back to where they were before.”