UPWARD MOVEMENT SEEN FOR COTTON PRICES IN 1999
Byline: Stuart Chirls
MEMPHIS, Tenn. — World cotton prices could reach 89 cents per pound by early 1999, as lower production and thinning inventories help kick the fiber out of its low-price doldrums.
However, the cutback in cotton use in Asia could hold prices at their current low levels for much of this summer.
That was the assessment of experts attending the 11th Annual Engineered Fiber Selection System Conference sponsored by Cotton Incorporated. The meeting ends its three-day run today at the Peabody Hotel here.
“My basic position is that price expectations for next year look pretty good, at least for growers,” said panelist Jarral Neeper, director of market and economic research for Calcot Ltd., a cotton broker. “Because world prices on both a nominal and inflation-adjusted basis have, to date, held support at significant points, I feel reasonably comfortable that new lows will not be seen.”
Currently, prices for December 1998 futures contracts are ranging from 69 to 71 cents per pound on the New York Cotton Exchange.
“The USDA’s global production estimate looks too high at 86.5 million bales,” said Neeper. “General problems noted in the Northern Hemisphere — cold, wet weather across central Asia, floods in Turkey, dry weather in West Africa — puts my own estimate 900,000 bales below USDA’s, for a world total of 84.4 million bales.”
With respect to world consumption, Neeper expects ending stocks to fall to 34 million bales from 38 million bales in 1998-99, tightening global supplies and boosting cotton’s upward price movement.
“But it won’t be easy moving into the mid-to-high 80s,” said Neeper. “First the market needs to get through all the technical garbage resting between 74 and 75 cents, which I believe will happen soon enough. The next hurdle and the major test of this market lies somewhere between 76 and 78 cents for the December contract. I look for a trading range during the summer months of 69 to 71 cents on the low side to 76 to 78 cents on the high side.
“Not until sometime in the late fall or early winter months will prices put in their final assault on the low side and begin their climb to higher ground. I believe 84 to 89 cents will eventually capture the entirety of the move higher.”
Other attendees added, though, that ample Chinese cotton exports and uncertainty in Asia could still bear down on cotton prices this year.
“China already has had an impact on the market,” said J. Berrye Worsham 3rd, president and chief executive officer of Cotton Inc., in an interview following the business session. “When China made its first tender offer of cotton for export earlier this year, it pushed the market price down by about 7 cents a pound. “It can definitely move the market,” he said. “Prices have remained lower over the past six months than they would have otherwise, on top of the poor plantings we have had here at home. They have a lot of cotton in inventory; the questions are, how much is usable? And long term, will China be a net importer? It is still the second or third largest customer for U.S. cotton.”
Asia’s ills have shifted export economics in the region. “Indonesia is down 30 percent in textile production; there are structural changes going on in Japan’s spinning industry, which have knocked production down 10 percent,” said Dawn McLaren, manager of fiber economics for Cotton Inc.
“Overall, exports to Asian markets are down by 14 percent. Also, China, which holds 40 percent of the world’s cotton inventory, is selling exports for the first time in three years,” she noted.
China, which imported an estimated 1.1 million bales in 1997-98, is also taking steps to jump-start domestic consumption.