Cotton harvests are heading for the biggest drop in more than two decades as farmers from the United States to India reduce planting and China increases demand for higher-quality imports.
Crops will tumble 11 per cent, the most since 1993, to 23.2 million tonnes in the year beginning August 1, data from the International Cotton Advisory Committee (ICAC) showed.
Farmers will reduce sowing to 31.5 million hectares, a 7.7 per cent decline and the largest in 11 years, according to the Washington-based agency, which represents 41 governments. By July next year, stockpiles will shrink 4.9 per cent to 15.9 million tonnes, the first reduction in four years, the group's data showed.
Prices that slumped 63 per cent from a record in 2011, prompting farmers to switch to soybeans and corn, are poised to rally 15 per cent to 95 cents a pound by the end of this year, according to the median of 16 estimates from analysts and traders compiled by Bloomberg.
China is buying higher-grade American and Australian fibre for textile makers at cheaper prices than domestic supplies and sitting on lower-quality local stockpiles to subsidise farmers.
"China will want to import some cotton that the world doesn't have to give next season," said Peter Egli, a director at Chicago-based Plexus Cotton. "Prices will have to go higher to satisfy mill demand and China imports," he told Bloomberg.
Cotton advanced 9.6 per cent to 82.35 cents this year on ICE Futures US in New York, the best performer among 24 raw materials on the Standard & Poor's GSCI Index.
The commodities gauge climbed 4.6 per cent and the MSCI All-Country World Index of equities rose 4.4 per cent. Treasuries lost 0.8 per cent, a Bank of America index show.
Money managers are gearing up for a rally. Bets on price gains in futures and options outnumbered wagers on declines by 59,138 contracts as of February. 5, the most since October 12, 2010, data from the Commodity Futures Trading Commission showed.
While global cotton output is tumbling, consumption will increase 3 per cent as the world economy recovers, leading to a shortage for the first time since 2010, according to ICAC.
Farmers in Spain will plant the first crops of the year this month. The US will follow in March, then China, Egypt and Central Asia in April, South Asia in June, Australia and Argentina in September and Brazil in October, according to the US department of agriculture's crop calendar.
* Bloomberg News