Consumption May Overtake Production in 2015/16

Low cotton prices are expected to persist through the rest of 2014/15 when farmers in the Northern Hemisphere make their planting decisions. As a result, world cotton area in 2015/16 is projected down 6% to 31.6 million hectares. Assuming a world average yield of 777 kg/ha, world cotton production is forecast to fall 6% to 24.6 million tons, which is the lowest volume since 2009/10. At the same time, world cotton consumption is expected to increase by 2% to 24.7 million tons, making 2015/16 the first time in five seasons where consumption overtakes production. Although consumption could surpass production by about 100,000 tons, this would only be a small dent in the large stockpile of cotton.

In 2015/16, cotton is likely to be much less attractive to plant due to falling cotton prices have fallen while prices for competing crops such as maize and soy have recovered from price downturns last September and October. Although the Indian government raised its minimum support price in 2014/15, for many farmers the price was still too low compared to production costs, and area in India is forecast down 5% to 11.6 million hectares. Assuming yield is similar to the last few seasons, production could reach 6.5 million tons, making India the largest producer of cotton for the second consecutive season. In China, area is projected to fall for the fourth consecutive season by 10% to 3.8 million hectares, and production is forecast down 11% to 5.7 million tons, the lowest level since 2003/04. In the United States, uncertainty over returns under the new STAX program and low cotton prices relative to competing crops may make farmers less enthusiastic to plant cotton this season. Area in the United States is expected to contract 10% to 3.6 million hectares, and production will decline 7% to 3.3 million tons in 2015/16. Low prices in Pakistan and the slow start to procurement by the Trading Corporation of Pakistan prompted many farmers ending cotton harvesting early to plant wheat instead. The lack of enthusiasm for cotton is likely to persist into planting time for 2015/16. Area in Pakistan is expected to fall by 5% to 2.7 million hectares, and production by 9% to 2.2 million tons.

World cotton consumption is forecast to grow by 2% in 2015/16 due to a moderate improvement in global economic growth of 3.5% as forecast by the International Monetary Fund. However, prices for polyester have also fallen much faster than cotton prices for much of the season, eroding the price attractiveness of cotton. Consumption in China is forecast to remain stable at around 8 million tons, accounting for around one third of world consumption. High domestic cotton prices, rising labor costs and the availability of cheap yarn imports in China have hurt its spinning sector, and the expansion of the spinning industry to other countries in Asia should continue to grow. In 2015/16, consumption in India, projected at 5.3 million tons and in Pakistan, at 2.4 million tons, will account for nearly a third of world cotton consumption. Bangladesh, Indonesia and Vietnam are projected to represent 10% of all lint consumption in 2015/16. World cotton trade is expected to rise 4% to 7.9 million tons due to a partial recovery in consumption, particularly in countries that rely on imports in 2015/16.

WORLD COTTON SUPPLY AND DISTRIBUTION
	2013/14	2014/15	2015/16		2013/14	2014/15	2015/16
					Changes from previous month
	Million Tons				Million Tons
Production	26.28	26.27	24.55		0.00	0.19	0.02
Consumption	23.50	24.28	24.69		0.03	-0.11	0.02
Imports	8.74	7.52	7.84		0.00	-0.01	0.07
Exports	8.86	7.52	7.84		0.00	-0.01	0.07
Ending Stocks	19.53	21.51	21.39		-0.03	0.26	0.26
Cotlook A Index*	91	68

*The price projection for 2014/15 is based on the ending stocks/mill use ratio in the world-less-China in 2012/13 (estimate), in 2013/14 (estimate) and 2014/15 (projection), on the ratio of Chinese net imports to world imports in 2013/14 (estimate) and 2014/15 (projection). The price projection is the mid-point of the 95% confidence interval: 61 cts/lb to 78 cts/lb.