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ICAC trims cotton price forecast, even as futures soar

The International Cotton Advisory Committee trimmed its forecast for cotton prices this season, even as futures made a muscular start to 2017, amid some sector approval of the favourite to become the next US farm secretary.

The ICAC, an intergovernmental group, lowered by 1 cent to 74 cents a pound its forecast for cotton prices in 2016-17, as measured by the Cotlook A index of physical values.

While still a rise of 3 cents year on year, the forecast implies expectations of a weaker performance ahead for the Cotlook A, which stood at 79.65 cents a pound as of Wednesday, and has proved relatively firm for the first half of 2016-17, which began in August.

Production, polyester pressures

Indeed, the ICAC – nudging 290,000 tonnes higher to 22.8m tonnes its forecast for world cotton production – flagged the impact of rising output on prices.

“World cotton production in 2016-17 is projected to rise by 8%… which may put pressure on cotton prices in the latter half of the season,” the committee said, highlighting also strong competition from polyester, despite the boost to prices of synthetic fibres from the recovery in oil markets.

“While prices for polyester, the main competing fibre [to cotton], have risen in recent weeks, they still remain well below international cotton prices,” the ICAC said.

This makes it “unlikely that cotton mill use will expand this season unless polyester prices continue to rise”.

‘Higher demand’

However, the comments came even as New York-traded cotton futures staged a strong start to 2017, rising by 3.4% to 74.23 cents a pound for the spot March contract at one point on Wednesday.

Besides setting a six-month high, that took above 5% gains in the contract so far in 2017.

Cotton buying has been “sparked by expectations of higher demand for textiles this year and by tax cuts by the new US president [Donald] Trump”, said Commerzbank.

Cotton, as an industrial commodity, has a history of moving more in line with share markets than futures in some other crops, and Wall Street equities remained close to record highs on Wednesday, helped by hopes that Mr Trump’s presidency will herald economic stimulus.

‘Producers could do worse’

Some commentators have also seen potential benefits for the cotton sector in the emergence of Sonny Perdue, a former governor of Georgia, a major cotton-growing state, as favourite to be appointed agriculture secretary in Mr Trump’s administration.

“Cotton producers could do worse than having a former governor of a major cotton state hold a seat within the cabinet of the incoming administration,” said cotton expert Louis Rose, at the Rose Report.

Mr Perdue was bought up on a cotton, grains and peanut farm in Georgia, and had stints as a vet and in a grain elevator business, before entering public service.

Mr Rose also flagged speculation that the US 2016 cotton crop may be downgraded, saying that “we are hearing some concerns that US production could fall short of the US Department of Agriculture’s current 16.5m-bale estimate”, noting a shortfall in warehouse receipts of the fibre.

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