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 2nd Apr 2013

The International Cotton Advisory Committee ditched ideas of a large drawdown in the world's record cotton stocks next season -- but forecast a rise in prices anyway. The intergovernmental group slashed to 250,000 tonnes, from 1.2m tonnes, its estimate of the decline in global cotton inventories in 2013-14.

The revision reflected a hike of 910,000 tonnes, to 23.5m tonnes, in the forecast for world production, amid ideas of a decline of only 2% in the estimate for world sowings. The ICAC forecast a yield of 754 kilogrammes per hectare, in line with last season, and sowings of some 34m hectares.

Beneficiary of 'bloodbath': While output had been expected to tumble by more than 14%, reflecting the impact of poor late-2012 prices, the latest estimate limits the decline to 9.8%. A jump of some 20% in New York cotton prices so far is viewed as prompting many farmers to reconsider plans for a huge scaleback in plantings of the fibre, notably in the US itself, the top exporter.

The US Department of Agriculture last week estimated plantings at 10.0m acres, above an industry estimate of 9.0m acres released in February. "And the bloodbath in prices  of other crop over the past few days," after data showed  US grain and soybean stocks above market expectations, "means the likelihood of some last-minute increases in cotton area is improving," Luke Mathews at Commonwealth Bank of Australia said.

Price forecast: Nonetheless, the ICAC, in its first forecast for cotton prices in 2013-14, forecast them averaging 118.0 cents per pound over the season. That figure -- a forecast for the Cotlook A index of physical prices rather than New York futures -- would represent a 31% jump from the 90.0 cents per pound expected for this season.

The index on Tuesday was pied at 94.0 cents per pound. The forecast value would also be the highest since the 164 cents a pound averaged in 2010-11, the season in which both the Cotlook A and futures set records above 200 cents per pound.

The ICAC, while failing to expand on its price forecast, said that its methodology was based on projections for cotton stocks held outside China, whose imports, the world's biggest, were also factored into sums.

China is expected to end 2013-14 with roughly half the world's cotton inventories, implying supplies in other countries ending the season at historically tight levels. China's inventories, in being unavailable for export, are often discounted in pricing forecasts.

Australia-China ties: The ICAC added that Australia had taken over from India, which in turn replaced the US last season, as the top cotton exporter to China. "Midway through this season, Australia has surpassed both India and the US, exporting 578,000 tonnes of cotton into China," the committee said.

The dynamic is the latest in a series of signs of China's growing reliance on Australia for crop imports. China last month opened up Australian rapeseed for imports, and has turned there for significant wheat imports too. (Source: by