World cotton demand may exceed production in CY07

The world cotton demand is expected to exceed the production in the crop year (CY) 2006-07 for the second year in a row.

According to a report by the New York-based Rabobank International, the outlook for the cotton sector in CY07 is strong with the global demand likely to remain strong in the foreseeable future.

In 2006, the global cotton demand is forecast to be 118.9 million bales with China, India and Pakistan accounting for nearly 77 million bales. The US is expected to remain the second largest producer as well as the largest exporter of cotton in the crop year.

Report added that China would continue to exert significant influence over the world cotton sector.

China's consumption is expected to reach 48.2 million bales in 2006, 6 per cent up against 2005. World cotton consumption in 2010 is forecast to reach 122.7 million bales.

While demand for cotton textiles and apparel continues to rise in the US, the domestic mill usage has maintained a steady decline. On the back of cheaper imports from countries with far lower costs of production, over 350 cotton mills in the US have closed in the last decade.

Report said that China and India would continue to increase their consumption of raw cotton. The increase will be driven not only by Asian giants' textile production capacity but also by the growing domestic apparel demand in both the countries.

The global cotton production in CY07 is forecast to be at 114.8 million bales. Production increases in China, India and Pakistan are likely to be overshadowed by the reduction in output from the US.

China's production is to grow by 9.6 per cent to 28.7 million bales. The report said that production in India will increase by 5.2 per cent in the crop year to 20 million bales.

On current projections, India will surpass the US as the second largest producer of cotton in the next five years, report added.

India has moved from being the third largest destination of US cotton in CY02 to being forecast as the third largest global exporter of cotton in CY07.

The US cotton crop for 2006 is expected to reach 20.6 million bales, 9.4 per cent below that of 2005. Brazil's cotton exports have continued to grow and are forecast to reach 2.2 million bales in the current crop year.

Demand and production mismatch has raised the world cotton price. On an average, the price was 8 per cent higher in the last crop year. As global demand increases and production falls, the world stock-to-use ratio is forecast to fall from 39.7 per cent to 38.2 per cent in 2007, the lowest in 12 years.

This decrease could cause a gradual increase in the world prices, said the report.

In the US prices remained low in 2006 largely due to high carryover stocks. But the sustained international demand is likely to place upward pressure on the US prices.