Cotton Outlook 2012 make Spaeculation rife after High Volatily in 2011

Cotton outlook 2012 make speculations rife after high volatility in the previous year. For cotton growers, 2012 started on a positive note as cotton prices nudged higher at the beginning of the year. The cotton prices were at record high level in March 2011, after which prices broke the momentum and continued to soften during the rest of the year. Cotton was one of the worst performing commodities of 2011.

Global cotton output is expected to expand by a whopping 6.5 percent to 122.8 million bales in 2011/12, while global consumption is anticipated to ease down by around 3.8 percent to 109.9 million bales.

Since then the commodity has shot past the psychological benchmark of $1 per pound in market prices; fuming speculation that cotton rates may persist at higher levels. International Cotton Advisory Committee (ICAC) has forecasted average Cotlook A Index for the first five months of 2011/12 at $1.09 per pound, which is nearly one-third lower than the full season average in 2010/11.

Cotton price equilibrium is not likely to drift upward much from the current level in the near term. In case of agricultural commodities, there will always be uncertainty, but, the latest statistics unveiled by USDA are enough to puncture, if there are any, bullish sentiments on cotton.

In essence, expansion in the worlds cotton reserves will continue to keep growers on the receiving end. “World ending stocks for 2011/12 are forecast to see the largest single-year increase in 25 years as global production and demand respond to last years record high prices”, according to the latest report released by USDA.

The Cotlook A Index-which is the average of the cheapest five quotations traded Internationally-is hovering around 100 cents per pound, down by nearly 44 percent compared to the average index at around $2.29 per pound in March 2011. Hence, the cotton stock position is expected to ameliorate by a whopping 29 percent to 58.3 million bales.

Although cotton prices have eased down in the past year, analysts predict that with cotton trading above 90 cent per pound, it is still lucrative for farmers to plant cotton, adding that, market will witness strong improvement in cotton reserves down the line. The average cotton prices stood at around 104 cents and 63 cents in CY10 and CY09, respectively.