Washington, DC
January 23, 2009
Based on current supply and demand
projections, as well as the Secretariat's understanding of the
effects of Chinese policies on trade, the Secretariat has
reduced the forecast of the season-average Cotlook A Index in
2008/09 from 68 U.S. cents per pound and a 95% confidence
interval ranging from 61 to 74 U.S. cents per pound (as of
January 2, 2009), to 61 U.S. cents per pound and a 95%
confidence interval ranging from 55 to 67 cents per pound (as of
January 21, 2009) (1)*.
The main variable in the ICAC Price Model is the
stocks-to-mill-use ratio (SMU) in the World-less-China
(Mainland). The Secretariat is forecasting an increase of the
SMU in the World-less China (Mainland) (2)* from 58% in 2007/08
to 60% in 2008/09.
The ICAC Price Model uses a dummy variable to distinguish
between periods of substantial government intervention in China
(Mainland) and periods of market-driven Chinese supply and
demand responses. This dummy variable interacts with two
variables: the lagged change in the SMU in China (Mainland),
used in periods of market-driven responses; and the current
change in Chinese net imports, used in periods of substantial
government intervention. Given that (1) state reserves in China
(Mainland) as of January 14 amounted to 1.8 million tons and
represented 23% of projected domestic production and 19% of
projected domestic consumption in 2008/09, and that (2) the
current procurement target is 2.72 million tons, the Secretariat
understands that the magnitude of the government intervention in
China (Mainland) is substantial. Therefore, the value of the
dummy variable in 2008/09 has been set to measure the effects of
the projected change in Chinese net imports on the A Index.
The International Cotton
Advisory Committee is an association of governments of
cotton producing and consuming countries. The Secretariat of the
Committee publishes information related to world cotton
production, supply, demand and prices, and provides technical
information on cotton production technology. Detailed statistics
are found bimonthly in COTTON: Review of the World Situation,
$185 per year. A monthly outlook is available on the Internet
1*) This price forecast does not take into account expected
trends in competing commodity prices, speculation, and exchange
rates.
2*) See “The New ICAC Cotton Price Forecasting Model,” Cotton:
Review of the World Situation, Vol. 60 No. 6, July-August 2007. |
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