The Secretariat noted last month, that just as in a Sherlock Holmes novel where the telling clue is the dog that did not bark, the key to understanding the cotton market was in recognizing what was not happening. Among other things, cotton prices during the first five months of 2012/13 did not exhibit the usual level of volatility.
However, cotton prices rose in mid-January. The Cotlook A Index fluctuated around an average of 83 cents per pound from early June 2012 to early January 2013. It then increased quickly, from 83.10 cents per pound on January 10, 2013 to 90.35 cents per pound on January 31, 2013, the highest price for the current season In 2012/13, global cotton production is estimated down by 5%, while cotton mill use is expected to rise by 2%.
However, production at 25.9 million ton remains much larger than consumption at 23.3 million tons. As a result, global stocks at the end of July 2013 are forecast at a record 16.7 million tons, up 19% from the previous year. China is holding a large percentage of world stocks in a national reserve, while “free” global ending stocks are forecast at only 9.7 million tons.
At this time, 2012/13 plantings in the Southern Hemisphere are finished for the most part. Farmers have reduced cotton area in order to switch to profitable competing crops, and cotton production is estimated down by about one-fifth in both Brazil and Australia. In the Northern Hemisphere, cotton area and production during 2013/14 are expected to decrease by 8% to 28.4 million hectares and 11% to 20.5 million tons for the same reason.