Cotton prices to increase until 2021-22

As demand outpaces production, cotton prices are likely to gradually increase, according to Abares, the official Australian commodities bureau. The forecast factors in expectations of continued declines in world inventories, which is projected to fall from a high of 24.3 million tonnes around two years ago to 16.0 million tonnes in 2021-22.

Cotton prices, as measured by the Cotlook A index, averaged 78 cents a pound this season, on an August-to-July basis. Abares forecast this price to average 80.4 cents a pound in 2017-18, and gradually rising to 88.0 cents a pound in 2021-22.

This also implies that the cotton price is likely to fall in the short-term as the Cotlook A index currently stands at around 87 cents a pound.

The demand for cotton will keep on rising despite favourable returns to growers. Global cotton consumption will, after a 7 per cent jump next season, rise by 2.4 per cent a year, spurred by "an expected rise in demand for clothing and textiles in Europe, the US, Japan and Australia". This will lead to an increased mill activity in top textile manufacturing nations including India, Bangladesh, Turkey and Indonesia.

"The textile and garment industries in these countries are expanding rapidly," Abares said, while flagging the prospect of "constrained" consumption in China, where a growing reliance on imported fibre will constrain industry competitiveness. "China is facing strong competition in the international textile market from neighbouring, low-cost Asian countries such as India, Bangladesh, Vietnam, Indonesia and Cambodia."

Meanwhile, supported by the improved production, and "strong world demand for high quality Australian cotton", Abares expects Australian exports to rise 44 per cent to 774,000 tonnes this season, and to 1.06 million tonnes in 2017-18.