April 2011 Cotton Corp Monthly Economic Report

Since the early March, New York

Despite the supply of 2010/11,

This prompted the price of cotton futures contracts in December to break through the limit of the maximum increase of 7 cents / pound, exceeding the range of the previous 120 cents / pound to 130 cents / pound.

Recently, the price of the December contract has fluctuated between 135 cents per pound and 145 cents per pound.

The new cotton A index climbed to more than 160 cents / pound, which represents cotton prices for cotton producers next year.

Insufficient supply is the root cause of the current high cotton price.

According to the latest report from the US Department of agriculture, the supply and demand of cotton is even more intense than previously predicted.

Global cotton production is expected to drop by 417 thousand packages, down from 115 million packages to 114 million 500 thousand bales.

Among them were the United States (-21.5 million package), Turkey (-15 million pack), Burkina Faso (-15 million pack) and Pakistan (-10 million pack).

Brazil's output is expected to increase by 200 thousand bales compared with last month.

Global cotton consumption is expected to increase by 518 thousand packs, from 116 million 600 thousand packs to 117 million 100 thousand bales.

Countries with expected adjustment are Pakistan (+30 million pack), the United States (+10 million pack) and Brazil (-10 million pack).

The decrease in production expectations and the increase in consumption expectation mean the end inventory reduction.

In April, the end of the world cotton inventory is estimated at 41 million 500 thousand bales, which is 780 thousand less than expected in March.

This is the first time that the end of global cotton inventory has reached such a low level since 1995/96. However, the total consumption of global cotton in is only 85 million 900 thousand packs, while the global cotton consumption in 2010/11 is expected to reach 117 million 100 thousand packages, which means that we will face a lower inventory consumption ratio.

The current global cotton inventory consumption ratio is 35.5%, which is the lowest in the era of globalization.

As the largest exporter of cotton in the world, its inventory consumption has increased the intensity of global cotton supply.

According to the latest data in April, cotton production in the United States is expected to decline, while consumption is expected to rise. This means that the end of the US inventory will drop by 300 thousand packets to the lowest level in history (1 million 600 thousand packs).

Correspondingly, the inventory consumption ratio in the United States has dropped to its lowest point in history.

At present, 8.2% of the inventory consumption ratio in the United States means that according to the current level of demand (exports plus U.S. factories), 2010/11 has only 3 weeks of surplus stock remaining to 2011/12.

And its historical average is over 40%, representing about 5 months of consumption.

At present, the tight supply situation may stimulate the cotton planting area and output of 2011/12 to increase substantially.

A preliminary forecast of high cotton prices in 2010/11 will lead to an unparalleled harvest of cotton in 2011/12.

The US Department of agriculture will issue the cotton balance sheet of cotton producing countries for the first time in 2011/12 next month.

If record production is expected to be achieved, the final inventory in 2011/12 will increase for the first time in 4 years, while the ease of supply will reduce the price of the year.

The difference between May and June (2010/11) and December (2011/12) futures contracts between 70-80 cents / pounds has already initially reflected this expectation.

The huge difference between spot price and futures price brings new problems to the whole cotton spinning industry chain, that is, how each link of the supply chain will react.

With the rise of cotton prices, yarn prices also rose.

Cotton prices are expected to drop sharply next fall, so worries about yarn prices are hanging over the spinning mills.

In order to avoid the risk of yarn price reduction, some spinning mills decided to avoid buying cotton at the current high price of 200 cents / pound, and to spend the current high price on inventory or even by reducing production capacity until they could buy cheaper cotton.

This strategy may be effective in the short term, but if many spinning mills adopt this strategy and purchase large quantities of new cotton after listing, it may increase the price of new cotton in autumn.

The Chinese government is likely to boost cotton prices next year.

In October last year, the Chinese government put 4 million 600 thousand packages of national reserve cotton into the market.

Not long ago, the Chinese government announced that it would buy cotton at the price of 19800 yuan / ton (at the current exchange rate of 136 cents / pound) to replenish the national cotton stocks.

If the Chinese government purchases cotton reserves at this price, it will be difficult to reduce cotton prices to below 136 cents / pounds.