Cotton prices may drop as much as 12 percent over the next three months as harvests gather pace in the U.S. and India, the top suppliers, helping ease a global deficit, the biggest state-owned buyer in the Asian nation said.
Futures in New York may decline to $1 to $1.05 a pound as India resumes exports and Pakistan and Brazil gather the new crop, Subhash Grover, managing director of Cotton Corp. of India, said in a telephone interview from Mumbai.
Cotton reached as high as $1.198 on ICE Futures U.S. on Oct. 15, the highest level since trading began 140 years ago. Prices may remain above $1 for the next three years as stocks-to-usage ratio stays at about 40 percent, less than the historic average of 50 percent or more, said Grover.
“The peak has been achieved this year,” he said. “We should stop being surprised by record prices. They will stay higher with periodic corrections” as demand for garments and yarn is “fantastic,” Grover said.
December-delivery cotton added as much as 1.2 percent to $1.1475 in after-hours trading on ICE Futures U.S. Prices have jumped 72 percent in the past year as stockpiles monitored by ICE Futures U.S. plunged to 11,182 bales on Oct. 15 from this year’s high of 1.081 million on June 2.
World output will be 116.7 million bales of 480 pounds, or 218 kilograms each, less than 117 million forecast in September, the U.S. Department of Agriculture said Oct. 8. Global use will be 120.8 million bales, up from 120.5 million projected in September, the USDA said.
“Cotton prices have gone up the least compared with any other commodity in the past 10 to 15 years,” Cotton Corp.’s Grover said. “Be it wheat, rice, corn or soybeans, cotton has gained the least in comparison.”
Cotton prices dropped almost 20 percent in the 15 years to the end of 2009, trailing 35 percent jump in wheat, 79 percent surge in corn and 87 percent climb in soybeans, according to Bloomberg data. The fiber is the best-performing commodity on Thomson Reuters/Jefferies CRB Index.
Demand in China, the biggest consumer, was forecast by the USDA to rise to 10.886 million tons in the 2010-11 season, from 10.669 million tons a year ago, creating a “severe shortage,” that will cut the nation’s inventories.
“China can switch off and on easily depending on global prices and manage their reserves,” said Grover. “With prices at current levels, they may prefer to use their reserves and buy to build stockpiles when prices drop.”
Prices in India may drop as harvests gather speed, he said. Daily arrivals have increased to 100,000 bales of 170 kilograms each from 65,000 bales a week ago. Sales may total 7.5 million to 8 million by the end of November, he said.
India’s textiles ministry Oct. 11 suspended registration of new exports contracts after it got applications to ship a total 5.5 million bales, the maximum allowed by the government, in 10 days after bookings resumed. Shipments will begin from Nov. 1.
“I don’t think Indian traders will have any difficulty in fulfilling export contracts,” Grover said. “There will be enough cotton available.”
Production may climb to 32.5 million bales in the year to Sept. 30, from 29.5 million bales last season, the state-owned Cotton Advisory Board has said.