If cotton were the only fiber used to make clothing and other textile goods, forecasting cotton prices would be relatively simple. Not only does the manufacture of polyester have an impact but money from hedge funds also exerts an influence on cotton marketing.
Polyester prices continue to exert downward pressures on cotton prices, said Jarral Neeper, president and CEO of Calcot, the Bakersfield, Calif.-based producer cooperative. Like so many other things involving the cotton markets these days, the polyester issues revolves around China.
“Even though cotton prices are maintaining a premium to polyester, it’s difficult for cotton prices to get much above where polyester prices are sitting, Neeper said while delivering the Cotton Market Outlook presentation at the Economic Outlook Symposium at the Beltwide Cotton Conferences in New Orleans.
“If you just look at the polyester production capacity and actual production around the world, it’s staggering. In 2012, actual production is expected to have reached 200 million bale equivalents. At the end of 2012, production capacity is expected to reach 275 million bale equivalents.”
If you wonder where all this capacity is coming from, Neeper says, you have to look no further than the Chinese textile sector. “Over 70 percent of production capacity and production is coming from China. So very cheap polyester is coming out of China. They’re controlling the world’s fiber market, if you will, both polyester and cotton.”
The cotton market experienced a technical sell-off prior to the Christmas holidays, from 82 cents down to 75 cents to 76 cents. “Well, it was a technical selloff in that managed money sold off this market rather heavily,” he noted. “It got down to around 5,000 net contracts long.
“It has since reversed, which is one thing that has helped propel this market back up from that 75-cent to 76-cent area and back into the low 80s. At least the speculative money has jumped back into cotton now; they see something that they like in the marketplace. It is mostly technically driven, but certainly it is helping prices come back a lot.”
To see more about Neeper’s comments, click on http://deltafarmpress.com/markets/chinas-conundrum-buying-high-selling-low