DEMAND AND COST FOR COTTON SEEN JUMPING IN NEXT DECADE

Byline: Michael McNamara

NEW YORK--A dramatic increase in world demand for cotton expected to occur over the next decade could cause cotton prices, which reached records this year, to move dramatically upward.
Tim Barry, staff economist for the New York Cotton Exchange said Tuesday that while demand may rise slightly in the U.S., emerging markets, as they become increasingly able to purchase consumer goods, will heighten the demand for the fiber.
Barry, who said his role within the Exchange precluded him from predicting future cotton prices, discussed his outlook on the global cotton situation at a luncheon meeting of the Textile Analysts Group. The meeting, held at the Exchange, drew about a dozen fiber and fabric executives.
Barry was a last-minute fill-in for Donald Conlin, chairman emeritus of the Exchange, who was unable to attend the meeting.
"The worldwide marketing effort by Cotton Incorporated and the expected growth in economic strength in countries throughout the Middle and Far East, will create the need for more cotton," said Barry.
He noted that even a 10 percent increase above the 86.8 million bales worldwide "could create an interesting situation."
"In the U.S., most of the increases in cotton production will have to come from improved efficiencies to generate a greater yield," Barry said. "This year more acreage was dedicated to cotton. But that," Barry pointed out, "didn't translate into that much more yield." This was mainly due to the inexperience of new growers and the fact that some of the additional acreage wasn't well suited for cotton.
Barry said that misinformation on cotton output from other cotton-producing countries, such as China, India and Pakistan, could lead to unexpected price fluctuations.
"China had a tremendous problem with insects, and if India, which has a lot of acreage but low yield, can't get its act together, $1 per pound cotton could be the norm, rather than the exception," Barry said. The price for mill-delivered cotton in July was $1.02 per pound, and while it was not as high as it was earlier this year, it continues to depress mill margins.
Insects and weather also played a large part in holding down the cotton crop in Mississippi and Texas. Mississippi, which usually yields 818 pounds of cotton per acre, was down 158 pounds this year, while in Texas "some of the crop was lost months ago and the land just plowed under," Barry said.
In addition, Barry pointed out that Monday's forecast from the USDA calling for a downward prediction in domestic cotton production to 20.27 million bales for the current year from 21.81 million bales--along with its prediction that U.S. mills will use 11.5 million bales, up from 11.19 million bales as earlier predicted--was the primary reason for October cotton futures to jump 200 points, or 2 cents a pound, on Tuesday. They rose to 82.95 cents from 80.95 cents less than one minute after the market opened at 10:30 a.m. The 200 point increase is the limit cotton can increase or decrease from the starting price in one day of trading.
"No one really knows what the prices are going to be, but it is a volatile situation in the market right now," Barry said.

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