July cotton shift: Prices top ICAC range as stocks hit 8-year low

Three institutional indicators frame this shift. ICAC projects ****/** global cotton production to decline * per cent to **.* million tonnes, while cultivated area contracts * per cent to **.* million hectares. USDA forecasts world ending stocks at **.* million bales, down *.* million bales year-on-year (YoY) and the lowest since ****/**. At the same time, global mill use is expected to reach ***.* million bales, the highest in six years, against production of only *** million bales, pushing the market into a supply deficit.

Cost pressure is the leading edge

ICAC identified a Q* **** surge in global fertiliser prices of more than ** per cent, driven by Middle East tensions and Strait of Hormuz shipping disruptions. Fertiliser is the single largest variable cash cost for cotton growers in the US, Brazil, India and China. Higher input costs before planting lift the breakeven farm-gate price for cotton and make competing crops such as corn and soybeans more attractive. That reduces cotton acreage in the next cycle.

Weather risks reinforce the tightening outlook. ICAC estimates that ** per cent of the US cotton crop is located in drought-affected areas. USDA has reduced its ****/** US production forecast to **.* million bales the lowest since ****/** while raising the US farm price forecast to ** c/lb from ** c/lb in ****/**. China, the US and Brazil are all expected to reduce cotton acreage, while India remains the exception, with ICAC projecting an * per cent production increase supported by a normal monsoon.