Cotton market is volatile like every other commodity market. Traders have to integrate bits of information regarding supply and demand, and compare the guesses of fellow traders before he pursues his estimates by promising to buy or sell. What are the current market trends, and what are the future predictions?

Cotton prices are in continuous fluctuation. Keeping abreast of the market trends is vital for businesses involving cotton; directly or indirectly. In the global market, cotton prices have reached its peak. Due to the tightening supply in the global forefront, the market faces a bullish situation and prices are expected to shoot up by 32% by January.

Most common forecast of cotton prices is the price of cotton futures. The spectacular use of the futures market is that, a demand and supply evaluation can be done, price movements can be calculated and measure; better or worse, comparatively with the other speculators. American cotton has a world market, and price. Since 1959, cotton futures have reached the highest ever at $1.25. In the global market, active December contract of NY cotton futures have reached a peak of $1.19/lbs during the past week, followed by lint prices in other countries.

The cotlook index comparing, and analyzing prices of 19 countries states the average prices to be 26th Oct $1.41/lbs (pound).

It is positively hoped that cotton trade is likely to come under control shortly. Prices will be eased down, resulting in a positive situation in the logistic issues, liquidity crunch, and other aspects.

Difference between demand and supply:

Global market data states that demand from across the globe might exceed supply, after a hailstorm smashed up the crops in Texas. Weakness of dollar also lends support to cotton. This declining trend of dollar boosts US supplies from importers holding other currencies. Total global cotton production and consumption are predicted to balance approximately around 25.1 million tons during 2010-11. This will be a result of rebound in production, and a 2% increase in mill use.

India and China are estimated to account for a major share in the increase in global cotton mill use during 2010-11. Analysts believe that prices may decrease marginally after the arrival of US, and Indian cotton, but will continue to remain above $1/lbs due to the low supply in the global market. Imports will prolong to recover in 2010-11 growing by 9% to reach 8.5 million tons due to Chinese imports. US exports are likely to increase by 27% to 3.3 million tons, due to larger crop, and US share of global exports will surge from 34% to 39%.

Opening stock of cotton will be 27% of the global supply in 2010-11, which is 35% lesser than the previous season. The decrease in stocks foretells the fact that cotton prices are likely to be vulnerable to volatile changes in crop prospects.

Chinese Market:

Cotton prices are augmented as crops are smashed by poor weather conditions, resulting in a damage of crops. A cold front moving across China is likely to cause damage to the cotton crops therein. Meteorological studies state that strong winds blowing from the North are affecting China, bringing rain, and a resulting cold temperature. So, Chinese market prices are expected to move higher.

Pakistan:

Cotton crop appears to have a delay of 2-3 weeks, which is expected to bring about short cotton arrivals. Cotton arrivals were 4.173 million bales during the first fortnight of October, which was 17.33% lesser when compared with the corresponding period of the previous year with 5.048 million bales. Prices of cotton lint in the country's local market reached its peak of PKR 8,000 per 37.324 kg, which is a 115% increase. In addition, cotton seed prices increased by 95%. This renewed the cotton buying interests.

Indian Scenario:

Being the second largest exporter of raw cotton next to US, India has a major share in the price hikes. Generally in India, cotton season starts after the month of September. During the post dassera period more cotton material is available in the market. Current year experienced an extended rainy season for 20 days.

This will ultimately result in the late arrival of cotton in the market. Due to the high prices in the global market, there are fewer chances for a decline in prices in the Indian market. As per the latest updates on Oct 26th cotton prices lingered around `44,000/Candy.

Some industry sources state that cotton prices are likely to experience a hike before December 15th, as exporters who have registered for exporting cotton will have to do it starting from November 1st- December 15th, within the span of these 45 days. Government has allowed for an export of 5.5 million bales. Industry players also believe that Indian port capacity does not support the export of this quantity of cotton. Shipping vessels with this capacity are not available.

Yarn rates increase subsequently due to the shortage of yarn in the cotton market. Pakistan market experienced an increase of PKR20-70 within 10 days, and PKR150-300 within a time span of 30 days. Incessant surge in the yarn prices have caused difficulties in the value-added sector. The available option for spinning mills is to consider using alternative fibres apart from cotton.

Industry analysts and economists foresee a speculative buying. Due to the increase in cotton prices, and a speculated future surge, growers, and suppliers are hold up the cotton seed deliveries with the anticipation of further increase. Cotton growers are likely to see benefits over the prices of the previous season, while the production costs have not increased proportionately. Cotton growers are expected to benefit more, and cash flow is predicted to be diverted from the ginners, spinners, and exporters towards cotton growers, and farmers.

The market driven price mechanism of cotton, with a supply crunch in the international market, delay in the cotton arrival in China, and India, and shortage of supply in Pakistan is likely to create chaos. Government should come up with policies in consultation with the textile associations to meet the interests of the investor, and achieve the export targets.

Yarn rates increase subsequently due to the shortage of yarn in the cotton market. Market experienced an increase of `20-70 within 10 days, and `150-300 within a time span of 30 days. Incessant surge in the yarn prices have caused difficulties in the value-added sector. The available option for spinning mills is to consider using alternative fibres apart from cotton.

Industry analysts and economists foresee a speculative buying. Due to the increase in cotton prices, and a speculated future surge, growers, and suppliers are hold up the cotton seed deliveries with the anticipation of further increase. Cotton growers are likely to see benefits over the prices of the previous season, while the production costs have not increased proportionately. Cotton growers are expected to benefit more, and cash flow is predicted to be diverted from the ginners, spinners, and exporters towards cotton growers, and farmers.

The market driven price mechanism of cotton, with a supply crunch in the international market, delay in the cotton arrival in China, and India, and shortage of supply in Pakistan is likely to create chaos. Government should come up with policies in consultation with the textile associations to meet the interests of the investor, and achieve the export targets.