Large Cotton Stocks Likely to Persist in 2015/16

In 2014/15, world ending stocks are estimated to have risen by 9% to 22 million tons, reflecting a stock-to-use ratio of 90%. From 2010/11 through the end of 2014/15, the world has accumulated 13.4 million tons of stock due to production exceeding consumption. In 2015/16, stocks are projected to decrease 5% to just under 21 million tons, reducing the excess volume by around 1 million tons. After increasing 16% to 9.4 million tons in 2014/15, stocks held outside of China are expected to decrease by 4%, to 9 million tons, by the end of 2015/16. Much of the world’s excess stock is held by the Chinese government from purchases made by the China National Cotton Reserve Corporation under its stockpiling policy from 2011-2014. The Reserve made its final purchases of the 2013/14 crop in March 2014 with sales continuing through August 2014, ending with an accumulated volume of around 11.3 million tons. On July 10, the Chinese government started to sell its stockpiles at prices close to the current domestic market price in the hopes of maintaining market stability. The cumulative volume of cotton sold through the end of July is around 40,000 tons. India’s ending stocks are estimated at 2.2 million tons in 2014/15, which is the second largest volume of stocks. Part of the increased volume is held by the Indian government, which procured stocks under its minimum price support program. Government purchases in 2014/15 are estimated at around 1.5 million tons, and sales through the end of July at around 650,000 tons. However, exports from India have fallen by 51% to 980,000 tons, also contributing to the buildup of stocks.

Stocks in 2015/16 are projected to decrease as consumption overtakes production for the first time in five seasons. World production in 2015/16 is forecast down 9% to 23.8 million tons. Output is expected to fall from 2% to 16% in the five largest producing countries. Rising costs of production and a decreased subsidy in China are likely to lead to a 16% drop in production to 5.4 million tons. India’s production is forecast down just 2% to 6.4 million tons due to improved yields from better monsoon weather this season and low prices for competing crops reducing the loss of cotton area. World consumption is projected to rise by 2% to 24.9 million tons in 2015/16. China’s consumption is forecast to remain stable at around 7.7 million tons. However, mill use is expected to grow in the next four largest consuming countries.

World cotton trade is expected to remain stable at 7.7 million tons in 2015/16. In 2015, the Chinese government limited import quota to the volume required under WTO rules of 894,000 tons, in part to spur demand for domestic cotton and Reserve sales. Given the large volume of stocks within China, it will likely maintain the restricted import volumes through 2016, and China’s imports could fall 10% to 1.6 million tons in 2015/16. Imports outside of China are forecast to increase by 4% to 6.1 million tons.

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	26.20	23.83		0.00	-0.01	-0.10
Consumption	23.72	24.35	24.90		-0.02	-0.01	-0.01
Imports	8.65	7.67	7.71		0.00	0.03	-0.03
Exports	8.80	7.67	7.71		-0.07	0.03	-0.03
Ending Stocks	20.18	22.03	20.95		0.14	0.14	0.05
Cotlook A Index*	91	71	72*

* The price projection for 2015/16 is based on the ending stocks/consumption ratio in the world-less-China in 2013/14 (estimate), in 2014/15 (estimate) and in 2015/16 (projection), on the ratio of Chinese net imports to world imports in 2014/15 (estimate) and 2015/16 (projection). The price projection is the mid-point of the 95% confidence interval: 59 cts/lb to 89 cts/lb.