Cotton output likely to up 28 percent in FY11-12

LAHORE: As world cotton production is expected to improve by 9 percent, the Ministry of Food and Agriculture forecast a domestic production of 15m bales, which is up 28 percent for FY12.

Experts said that estimates will set a future course for cotton prices in both in the international and domestic market, which hit their peaks during 3Qin FY11. Since then prices have fallen mainly owing to slowdown in Chinese mill demand and in anticipation of improved supply next year.

According to the latest estimates published by United States Department of Agriculture (USDA), world cotton output is forecasted to jump by 9 percent to 123.8mnbales in FY12. If materialized it will be the highest ever production, exceeding the previous record of 121.8m bales in FY07. Also, it is noteworthy that the world consumption is projected to augment to 119.5mn bales in FY12 (versus 115.5m bales in FY11) driven by global economic recovery along improved production outlook.

On the domestic front, Ministry of Food and Agriculture has set an ambitious cotton production target of 15m bales for FY12 against last year’s production of 11.7m bales which was affected by the floods. The expected jump in cotton output is mainly because of an anticipated increase in area under cultivation, forecasted to rise by 8 percent to 8.5m acres. Experts view it as an optimistic target as water constraints continue to exist along with likely hood of Leaf Curl Virus and other pest attacks. In experts view, 13-13.5m bales seem to be a more achievable target.

FY11 witnessed cotton prices rallying to all time peaks internationally and domestically on the back of limited supply and escalating demand. However, prices globally took a breather in April, predominantly owing to slowdown in demand by mills (mainly in China) and expectation of better crop in the coming season.

With the cotton prices predicted to stabilize in FY12, the profitability of the stand alone spinning units will be affected the most as they will not be able to make wind fall gains as a result of continuously rising prices and supply concerns.

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