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Economic Update

Information for U.S. cotton leaders about Cotton Incorporated from the Cotton Board
July 2013

The last month has generally been described as a period of slow trading activity, but there has been some movement in world cotton prices. The most-actively traded December futures contract rose to nearly 90 cents/lb after the release of last month’s USDA report and then fell as low as 83 cents/lb in early July. In the most recent activity, the December contract traded around 85 cents/lb, nearly in the middle of its range since May. The A Index moved between 90 and 96 cents/lb over the past month and was 94 cents/lb in the most recent data. The latest USDA report featured revisions that increased world production and decreased world consumption figures for both the 2012/13 and 2013/14 crop years. The combination of higher world consumption estimates and lower global consumption figures implied an increase in ending stocks, and the projection for 2013/14 world ending stocks rose 1.8 million bales (to 94.3 million bales). According to the current forecast, 2013/14 ending stocks will be 10% higher (94.3 million bales) than the record volume estimated for 2012/13 (85.6 million). Given the existence of so much cotton, there has been potential for significant downward pressure on world prices. However, that pressure has been mitigated by Chinese cotton policies that have absorbed stocks and withheld them from the market. The most important question for cotton price direction is how much cotton China might import in the upcoming crop year, and there is considerable uncertainty surrounding China’s import forecast.

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