Cotton Price Should Stay Relatively High, Olam Says (03/19/2010)

Updated: 2010/3/19 10:11:00

Cotton prices should remain relatively high until the next marketing year begins in August because of a shortage in global supplies, said Olam International Ltd., one of the world´s top three cotton traders.

We´re at the end of a tight supply-and-demand situation and the big question mark for the market is what happens with the new crop, Cliff White, a senior vice president at Olam, said in an interview in Singapore today. The world is not going to increase its cotton planting as much as demand.

Cotton prices in New York rose to 84.6 cents a pound on March 1, the highest price in two years, on growing demand from textile mills. The contract for May delivery fell 1.1 percent to 82.09 cents a pound on ICE Futures U.S. in New York at 4:54 p.m. Singapore time, after losing as much as 1.5 percent earlier.

The December-delivery contract needs to rise to 75 cents to 80 cents a pound by May to encourage farmers to expand planting by 5 million acres, Joe Nicosia, chief executive officer at Allenberg Cotton Co., said at a conference in Singapore today. The contract traded at 74 cents a pound, down 0.3 percent, at 4:28 p.m. Singapore time.

Global demand for cotton is forecast to rise to 24.8 million metric tons in the year starting Aug. 1, compared with the 24.5 million tons estimated last month and 24.1 million tons in the current marketing year, the International Cotton Advisory Committee, a group of governments of countries producing, consuming and trading the fiber, said in a March 1 report.

Tight Situation

That means you still have a tight supply-and-demand situation into the new crop, said White, who is also president of trade body the International Cotton Association. I don´t think we can afford any crop problems.

Cotton prices will explode if China and India have production problems next season, Allenberg´s Nicosia said. If China and India have a problem, it´s game over.

China and India are the world´s two largest producers and consumers of cotton, according to the U.S. Department of Agriculture. China is also the biggest cotton importer and is forecast to buy 1.96 million tons this year, up from 1.52 million tons a year earlier, according to the USDA.

Exporters in India plan to more than quadruple shipments in the October-February period from a year earlier to benefit from rising prices, the country´s textiles ministry said yesterday.

Shippers registered to export 5.92 million bales of cotton during the period, compared with 1.32 million bales a year earlier, the ministry said on its Web site.

The Cotlook A Index of prices in Asian ports fell 1.2 percent to 86.05 cents a pound yesterday. The index reflects the average of the five cheapest prices offered at Far East ports.

The index may average 74 cents a pound this season, 21 percent higher than the previous year and up from a February estimate of 72 cents, the International Cotton Advisory Committee said in its report.

Source: bloomberg

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