Reuters
November 14

Global cotton output will fall by nine percent next year while consumption rises by three percent, far outstripping supply, but high stocks will keep prices well below average, industry analysts said on Thursday.

But for a billion people involved to some extent in cotton production, even a modest price rise will be a relief after oversupply pushed markets to a 30-year low in October 2001.

Ray Butler, Managing Director of newsletter Cotton Outlook, told a conference in the Uzbek capital that worldwide output in the 2002/03 season was estimated at around 19.4 million tonnes of cotton lint, well down from nearly 21.3 million in 2001/02.

By contrast, he said, consumption was expected to rise to almost 21 million tonnes in 2002/03, a three percent rise on the 2001/02 figure.

The International Cotton Advisory Committee (ICAC), a trade body, gave a similar forecast.

“The expectation of the ICAC is that production will be below consumption by 1.4 million tonnes,” ICAC economist Andrei Guitchounts told the conference.

But while he expected prices to rise sharply from their 30-year low of $0.35 per pound on the Cotlook A Index, an industry benchmark, they would still be well below the long-term average.

Guitchounts forecast the 2002/03 average price at $0.54 per pound, a hefty 29 percent jump from the previous season, rising to $0.57 in 2003/04. This compares with an average for the last 30 years of $0.71 per pound.

He gave three main reasons why excess supply drove prices so low last year: the expansion of the cotton area in high yield countries; greater use of genetically modified plantings; and, above all, government subsidies.

“In the United States, farmers received $2.8 billion in direct assistance in 2001/02, and $1.3 billion in indirect assistance. That’s around $660 per hectare,” he said.

In Europe, Guitchounts added, cotton growers such as Greece and Spain received over $700 million in subsidies through the European Union’s Common Agricultural Policy last season.

“An agreement to reduce subsidies that distort (the market) will not be easy,” he said.

Desperate Producers: With much cotton produced by the poorest of agricultural labourers, he said that a total of one billion people worldwide were to some extent dependent on the crop, and they suffered dramatically from last year’s price drop.

“The decline...in 2001/02 led to direct loss of income of more than $14 billion in the cotton sector.”

With so much excess supply, Cotton Outlook’s Butler said, demand from China, the world’s largest grower, could become a key factor.

Output there rocketed to 5.32 million tonnes in 2001/02 from 3.54 million in 1986/87, but is forecast to drop to 4.8 million in the 2002/03 season.

“China is crucial, it could absorb U.S. supplies,” Butler said, pointing out that the United States currently holds 39 percent of the world’s export markets, well up from its normal level of between 20 and 30 percent.

Uzbekistan, the world’s fifth largest producer, is the second largest exporter, accounting for some 15-20 percent of all exported cotton, Butler said.

Uzbek Deputy Prime Minister Elyor Ganiyev said his ex-Soviet Central Asian state was now exporting to around 60 countries.

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