China's cotton sowings lowest since 1949

Cotton prices fell - despite a forecast that Chinese cotton sowings will drop to their lowest in 56 years - as expectations for US exports were not increased, as many investors had expected.

The US Department of Agriculture(USDA), in its first global cotton supply and demand estimates for 2015-16, forecast "sharply lower world production", seen falling by 8.0m bales to 111.25m bales.

Output in China, until this season the world's top producer, will drop by 3.0m bales to a 12-year low of 27.0m bales - 1.0m bales less than outlined in an initial estimate made in February.

"The estimated area of 3.70m hectares is down 16% from last year and is the lowest area since 1949," the USDA said, citing changes to China's subsidy regime as behind the decrease.

"The new policy has resulted in lower profits for cotton farmers, who have responded by shifting from cotton to other crops, such as rice and corn, that offer higher returns or receive greater government support."

The largest drop in sowings is expected for the Yellow and Yangtze River basins, "where high labour costs, declining cotton prices, and uncertain government support have discouraged cotton farmers".

'Report was bearish'

Nonetheless, even though the USDA forecast higher world cotton consumption in 2015-16 too - lifted by 7.5m bales to 115.3m bales thanks to economic growth and weak prices of the fibre - the dynamics would allow only a relatively small drop in world stocks.

Investors will drop by less than 4.0m bales - albeit the first decline in six years and to a level second only to this season's record.

New York investors also pointed to the USDA's decision to stick with a forecast for US exports of 10.7m bales for this season, despite ideas that trade had been going fast enough to warrant an upgrade.

"Overall, we think the report was bearish," said Louis Rose at the Rose Report, flagging "the failure of the USDA to raise its estimate of old crop exports".

The estimate of 10.7m bales "is not on par with most traders' expectations".

New York cotton futures for July closed down 0.6% at 65.02 cents a pound.

'Favourable moisture conditions'

The report also issued a forecast for US cotton production in 2015-16 which, at 14.5m bales, was 500,000 bales higher than an outline estimate made in February.

The USDA highlighted "favourable moisture conditions" in the key South West cotton growing area, following recent rains.

The forecast for US cotton crop abandonment was trimmed by 0.7 points to 10.0%, and the yield estimate nudged higher by 9 pounds per acre to 809 pounds per acre.