With the exception of the brief increase that accompanied India's announced ban on exports, cotton prices trended lower or sideways last month. Values for the most actively traded May New York futures contract declined from a general range between 95 and 99 cents/lb to levels between 88 and 92 cents/lb. Over the same time period, A Index prices generally held to values near 100 cents/lb. 

 

Following India's announcement to halt exports on March 5, New York futures prices rose the 4 cents/lb daily limit. The reaction in A Index prices was delayed a day, with values increasing 4 cents/lb on March 6. In later trading, both New York and A Index prices retreated. Uncertainty related to both the volume permitted and the regulatory process of exporting cotton from India has been widely cited as a factor contributing to price volatility during the 2010/11 crop year. Developments related to the current ban also seem to be a source of confusion, with the announcement appearing to have surprised several government ministers.  An official review of the ban that took place on March 9 was mixed, easing certain restrictions but not entirely lifting the ban. On March 11, the Indian Trade Minister announced that exports would be allowed to resume. 

 

There had been a significant difference between the USDA export figure for India (6.3 million bales) and the number widely cited by trade sources and the Indian press (9.4 million 375lb Indian bales, or the equivalent of 7.3 million 480lb U.S. sized bales). In their latest report, the USDA brought their figure in closer accord with those from other sources by increasing their export forecast for India by 1.5 million bales. 

 

The increase in Indian exports has been attributed to import demand from China, with the USDA increasing their import forecast for 2011/12 Chinese imports by 1.5 million bales.  At 18.5 million bales, the current figure for Chinese imports is more than 50% higher than in 2010/11. However, the increase in Chinese imports has been heavily supported by purchases related to the Chinese reserve system, not mill demand. The USDA lowered their consumption estimate for China by 500,000 bales in the latest report, bringing the current projection to 43.5 million bales. This current forecast is lower than both the figure for 2008/09 (44.0 million bales), which coincided with the worst of the global recession, and the figure for 2010/11 (46.0 million bales), when world cotton supplies were tight.

 

With China estimated to represent 40% of global mill use, world consumption is also expected to be depressed this crop year. The forecast declined nearly one million bales in the latest report, dropping from 109.7 million bales to 108.7 million bales. As was the case with China, current global consumption estimate for 2011/12 is both lower than during the recession in 2008/09 (110.3 million bales) and lower than in 2010/11 when world supplies were tight (114.5 million bales). Outside China, other country-level revisions were for Brazil (-300,000), Egypt (-100,000) and the U.S. (-100,000). South Korea was the only country with a significant increase in projected mill-use (+100,000). 

 

The world production estimate increased 300,000 bales, from 123.3 million to 123.6 million. The change in the global production figure was principally a result of higher harvest expectations in Brazil (+300,000 bales) and Pakistan (+200,000) being partially offset by a lower forecast for Australia (-200,000). Combined with a 273,000 bale addition to beginning stocks, the decrease in consumption and increase in production lifted forecast ending stocks by 1.6 million bales to 62.3 million. This represents the second highest level of ending stocks on record, only 157,000 bales lower than the all-time high set in 2006/07.

 

Ending stocks are expected to climb further in 2012/13. In late February, the USDA released a set of preliminary estimates for the upcoming crop year. Even with production expected to fall and consumption expected to increase, a production surplus of 4.0 million bales is predicted. If realized, this surplus would imply a new record level for ending stocks of 66.3 million bales.  With such a large supply of cotton, it could be difficult for cotton prices to mount a strong rally in the coming crop year. Nonetheless, there are several factors that could alter this early outlook. Among them are the weather, macroeconomic conditions and their potential to affect end-use demand, and government activity, with both China's reserve-related purchasing and trade restrictions by India likely to remain important for price direction in the upcoming crop year.