International Cotton Advisory Committee Releases Price Impact Report

The Secretariat of the International Cotton Advisory Committee submitted a report on the impact of price fluctuations at the 70th plenary session in Buenos Aires, Argentina.

This report shows that world cotton production is expected to rise for the second consecutive year in the 2011-12 cotton season, reaching 26.9 million tons, an increase of 8%.

The expansion of the cotton cultivation area in this cotton season was the result of paying high prices to cotton farmers in the 2010-11 cotton season. In the 2010-11 cotton season, due to the extremely high cotton prices, the world cotton plant consumption is expected to recover slowly in the 2011-12 cotton season, reaching 24.7 million tons, an increase of 1.5%.

The amount of cotton used in factories around the world may be driven by the increase in the price of raw materials, but the global economy may experience double-digit declines in these expectations.

In the 2011-12 cotton season, global cotton imports are forecast to rebound to 8.1 million tons, which will result in larger cotton production, higher consumption and the Chinese government’s reconstruction reserve. As a result, in the 2011-12 cotton season, the expected cotton surplus will reach 2.2 million tons, and the global final inventory will rebound by 24% to 11.2 million tons.

The rebound in the ratio of stocks/factories used outside of China may lead to an average season-low decline in the Cotlook A Index for the 2011-12 cotton season. However, the season average of the Cotlook A Index will remain above the 10-year average of 60 cents/lb. The price fluctuations of cotton in the 2011-12 cotton season may decline due to the expectation that global cotton stocks will recover, but the fluctuation of cotton prices will still exceed the historical average.

This report summarizes the strategies and tools that governments and the private sector can use to manage price risk. The government plays an important role in resolving price risks, ensuring the transparency of cotton supply, consumption, and trade statistics; providing a stable policy environment; endeavoring to end the Doha round of talks and consolidating trade rules; and empowering the private sector to intervene in the evasion mechanism.