Bremen cotton price volatility defies logic

The current cotton price situation cannot be explained by either the statistical facts or any logic. While overall it is possible to speak of a high level, there is a lack of continuity. Volatility is predominant. In the last 10 days alone, the CIF Bremen Index ranged from 97.75 to 96.25 cents/lb. New York has an even a larger range to offer, from 88.13 to 85.01 cents/lb. The Cotlook A Index is also following the trend of the others and is hardly calming down.

 

This development cannot be explained by looking at global statistics, neither the high level nor the volatile performance. Global cotton stocks are high. The ICAC Secretariat in Washington estimates nearly 20 million tonnes, while in its January analysis the U.S. Department of Agriculture estimated even more than 21 million tonnes of end stocks for the 2013/14 season.

 

Nevertheless, most of this cotton is in China and is not available for the world market, although there are currently no reports of major supply shortages in trading. The situation is not balanced, with the supply outside China currently having a volume of roughly 8.5 million tonnes. Not too long ago, in the 2009/10 season, this volume corresponded to the entire world cotton stocks, including China.

 

The state-owned Chinese reserve continues to buy from the domestic and foreign markets. The reserve has now become the biggest seller in the world, exceeding even U.S. exports, which means that this remarkable stock position is expected to remain hugely relevant for the next few years. This season, more than 5.6 million tonnes were bought for the reserve and over 400,000 tonnes were sold. On 7th  February, after the Chinese Spring Festival, sales will continue.

 

 In its latest estimate, the ICAC is reporting a smaller harvest in the Northern hemisphere. The Northern hemisphere accounts for the largest part of the global cotton crop by far, with close to 90% of world production and for the current season the crop size is 7 percent lower than in the previous season. The U.S. is likely to harvest a significantly smaller volume in the current season (- 24%), while for the upcoming 2014/15 season a larger crop is projected. 

 

Another large decline of around 600,000 tonnes is expected in China in the current season, with a further reduction in the harvest in 2014/15. India (+200,000 tonnes) and Brazil (+380,000 tonnes) are expected to produce clearly higher cotton volumes in 2013/14.