World cotton production in 2013-14 is set to decline for the second year in a row to 25.5 million tonnes (mt) ( 26.5 mt). However, world consumption, projected at 23.7 mt with only a marginal increase from the previous year's 23.5 mt, will still trail production.

Together with a sharply lower world trade (export-import) estimate of 8.8 mt (last year 9.7 mt), the global cotton market may end the year with record high stocks of 19.2 mt (last year 17.4 mt).

Giving out these figures, the Washington DC-headquartered International Cotton Advisory Committee (ICAC), an inter-governmental organisation of cotton producing and consuming countries, said that the United States will likely account for most of the decline in world production with a 25 per cent fall to 900,000 tonnes.

It is well known that in the US, corn, soyabean, wheat and cotton compete for acreage. Cotton has been losing out gradually in recent years.

From a consumption and trade perspective, China is the mover and shaker of the world cotton market.

The fibre has to compete with polyester for market share. According to ICAC, 2013/14 is likely to be the fifth consecutive year in which cotton prices will be substantially higher than polyester prices in China, raising the risk of the natural fibre losing market share.

At the same time, the Chinese government has announced a program of purchasing cotton from growers which will boost its national reserves to a record 15 mt by March 2014. ICAC has asserted that the direction of the world cotton industry over the next few years will be determined by policy decisions by the Government of China.World trade in cotton is forecast to decline by approximately a million tonnes to less than 9 mt.

This reduction is almost entirely accounted for by reduced imports into China. Shipment from all major exporters is expected to fall. No wonder then, with consumption lower than production and trade projected to decline sharply, the ending stocks for the year are sure to hit a high. This will have implication for export prices.According to ICAC, the forecast for the season average Cotlook A Index in 2013/14 ranges from 85 to 126 cents per pound, with a midpoint of 103 cents per pound while world ending stocks are forecast to climb to 19 mt by July 2014 with India and Pakistan contributing to the burdensome inventory.

However, given the market fundamentals, speculative capital may opt to stay out of cotton.A substantially stronger dollar in the months head and steady tapering of liquidity-infusing quantitative easing are also factors to be reckoned with. While cotton prices may stay firm, a bull run appears most unlikely.

Meanwhile, cotton acreage in India has reached 11.1 million hectares, unchanged from the previous year, according to the latest Weather Watch Group report. With a more benign South-West monsoon in terms of temporal and spatial distribution of rains this year, the prospect of higher yield is real.In 2012, cotton production reached 34 million bales (of 170 kg each) while this year 35 million bales look a distinct possibility.

Given this level of production which will throw up a huge surplus, India must seek to maximise cotton exports.

As pointed out earlier, world trade volume is set to shrink and there will be competition from other origins.An unrestricted export policy alone can help the country liquidate stocks, earn foreign exchange and ensure remunerative price to growers. A weak rupee will provide India the much needed competitive edge in the export market.

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