The International Cotton Advisory Committee lifted its forecast for world cotton prices, as raised its estimate of the world cotton production deficit this season.
But the ICAC said that the current boost in prices from currency disruption in India would ease, as new notes circulated.
The ICAC saw cotton consumption outstripping supply by 1.72m tonnes over 2016-17, compared to the 1.20m tonnes forecast last month.
“As a result, ending are projected to shrink by 9% to 17.4m tonnes, which represents 72% of expected mill use,” the ICAC said.
Cash shortage in India
Cotton prices have been supported by the currency crises in India.
The replacement of 500 and 1000 rupee notes has put a squeeze on cash availability.
“Insufficient supplies of the new notes have led to a currency crisis, since much of the Indian economy operates on a cash basis, including payments to farmers,” the ICAC said.
“This has led to delays in sales of cotton and shipments to ports, creating shortages in the domestic market as well as reducing supplies to the global market.”
Demand shifts elsewhere
But the ICAC said that “the effect of the crisis will be limited as the crisis is likely to be resolved in the near future”.
Still, the ICAC said that “due to the delay in Indian cotton reaching the global market, other countries may benefit from increased exports in the short term”.
Indian cotton exports are expected to fall by 34% to 825,000 tons in 2016-17.
Top consumer Bangladesh, which is expected to grow imports by 1% to 1.4m tonnes this season, may need to turn to countries other than India to meet its needs.
But exports from Australia, Burkina Faso, and Mali, are expected to grow rapidly.
“Cotton from these origins may replace some of India’s exports if their crops reach the global market sooner.”
Price prospects lifted
Cotton consumption was seen at 24.20m tonnes in 2016-17, up from the 23.75m tonnes forecast last month.
World cotton production was seen at 22.48m tonnes, up from the 22.40m tonnes forecast last month.
The ICAC forecast prices on the Cotlook A index to average 75 cents a pound in 2015, once cent up from its previous forecast.
The Cotlook A index currently stands at 80.05 a pound.
Cotton futures for 2017 in New York are currently floating around 70 cents a pound.