London, 2 November 2010

International cotton prices continued to rise steeply in October. On October 11, the Cotlook A Index broke the previous record of 119.4 cents per pound established in April 1995, and continued to rise in the following weeks, reaching 147 cents per pound on October 27, 2010.

The Cotlook A Index averaged 127 cents per pound in October 2010, 89% higher than in October 2009. Price volatility is also very high this season.1 It averaged 57% from August to October 2010, compared to 11% over the same period in 2009/10. This was the highest volatility recorded in the first three months of a season since the Cotlook A Index was first published in the 1960s.

The steep rise and high volatility of cotton prices over the first three months of the current season reflect primarily a combination of low global cotton stocks and continued demand by spinning mills, but has also been affected by panic induced by fear of defaults on contracts. Global cotton stocks fell by 25% in 2009/10 to 8.9 million tons, the smallest in seven seasons. In 2010/11, rising production and mill use are expected to keep global stocks tight.

The strengthening of prices over the last few months has been exacerbated by several additional factors: difficulties to source cotton in the transition period between the two seasons, the drop in Pakistan’s production estimate due to devastating floods and the smaller-than-expected Chinese production, restrictions on shipments from India and the weakening of the U.S. dollar.

The ICAC Price Model forecasts a 2010/11 season-average Cotlook A Index of 92 cents per pound, 18% higher than last season and the highest since 1994/95. The 95% confidence interval extends from 80 to 106 cents per pound.

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