Where will cotton be in 10 years time? A vision for the future. Plexus Cotton Limited March 2011

Transcription

1 Where will cotton be in 10 years time? A vision for the future. Plexus Cotton Limited March 2011

2 Trying to predict the future is like trying to drive down a country road, at night, with no lights, while looking out the back window. (Peter F. Drucker, writer.)

3 Cotton Overview. From over production to over consumption.

4 Production

5 Historical Production 28, , ,000 22, ,000 18, ,000 14, , , / / / / / / / / / / / / / / / / / / / / /11 p '000 MT c/lb PROD (kmt) Cotlook A Source: ICAC Cotton World Statistics

6 Historical Production 40 years trending upwards. Over production. U.S. Farm Bill / E.U. Subsidies Artificially low prices? WTO & Brazil Early 2000 s: GM production explosion

7 Limited Planted Area Variation. 28,000 50,000 26,000 45,000 24,000 22,000 40,000 20,000 18,000 35,000 30,000 16,000 14,000 25,000 12,000 20,000 10,000 15, / / / / / / / / / / / / / / / / / / / /09 e 2010/11 p 2012/13 p 2014/15 p '000 MT '000 Ha PROD (kmt) AREA (kha) Source: ICAC Cotton World Statistics

8 2002/ / / /09 est. 2010/11 proj. 2012/13 proj. 2014/15 proj. 2000/ / / / / / / /87 Yield Gains Source: ICAC Cotton World Statistics 1970/ / / / / / / /85 Kgs/Ha

9 Acreage Outlook Irrigated cotton acreage limited by water constraints.

10 Acreage Outlook Irrigated cotton acreage limited by water constraints. Competition for acreage between cotton and grains.

11 Acreage Outlook: Comparative Crop Prices Source: Impact of Demand Driven Cotton Cycle Lea ITMF Textile Value Chain Meeting, 2011P

12 Acreage Outlook Irrigated cotton acreage limited by water constraints. Competition for acreage between cotton and grains. Food before fibre.

13 Acreage Outlook Irrigated cotton acreage limited by water constraints. Competition for acreage between cotton and grains. Food before fibre. Ethanol mandate displacing food acres.

14 Food Commodity Prices Source: Food & Agriculture Organization (U.N.) March 2011

15 Acreage Outlook: Population v Agricultural Land Population Growth Index Agricultural Land Growth Index Index: 1961 Population: 3.07 Bn Agr. Land: 44.5m sq km Source: World Bank

16 Yield Outlook: Can yields continue upwards? ICAC May 2010: The incoming technological innovations are expected to have greater impacts on production costs than cotton yields. Limited scope for nearby technological increases. Potential of bio engineering & gene technology is difficult to predict. Heat/cold/drought resistance. Make unsuitable land suitable?

17 Production Outlook Strong prices will encourage production. Fierce acreage competition from food, feed and fuel crops will limit potential production gains. Yield increases more gradually and depending upon technological advancement.

18 Consumption

19 2000/ / / / /09 e 2010/11 p 2012/13 p 2014/15 p 1998/ / / / / /89 Consumption. 28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 CONS (kmt) Source: ICAC Cotton World Statistics 1970/ / / / / / / / /87 '000 MT

20 Consumption. 2004/05 onwards: BRIC country awakening. Population migration & middle class expansion. Increasing textile demand Increasing protein demand A consumption driven world economy.

21 Global Cotton Fibre Consumption Average global per capita cotton consumption IF = Average U.S.A. per capita cotton consumption 470m Bales Consumption 4-fold increase in global production requirement

22 PRC Retail Sales Trillion RMB

23 2018p 2019p 2020p 2016p 2017p 2015p 2014p 2013p 2012p 2011p PRC Retail Sales yr avg growth rate 5yr avg growth rate Trillion RMB

24 Cotton s Share of Global Fibre Consumption Non-Cotton Fibres (MT) Cotton (MT) Millions MT PROJN Source: ICAC Cotton World Statistics

25 Supply Chain Price Response: The U.S. Cotton Example. Source: Cotton Inc & ICAC: Pass Through Analysis of Cotton Prices

26 Consumption Outlook Consumption continues to grow, driven by demand from developing markets. Price remains firm & cotton s share of fibre market continues to decrease on supply limitations. Cotton increasingly becomes a luxury item.

27 Man Made Fibres

28 Real Prices of Cotton, Polyester & Oil. Source: ICAC Revisiting the Relationship between Cotton, Polyester & Oil Prices

29 Cotton, MMF & the Oil Price Effect. Correlation between oil, polyester & cotton prices is complex & often overstated. ICAC Report Jan2011: No stable relationship, but.. A shock in oil price shifts the equilibrium polyester price and this, in turn, shifts the equilibrium cotton price.

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32 Cotton, MMF & the Oil Price Effect. Correlation between oil, polyester & cotton prices is complex & often overstated. ICAC Report Jan2011: No stable relationship, but.. A shock in oil price shifts the equilibrium polyester price and this, in turn, shifts the equilibrium cotton price. Cotton cannot be divorced from oil & polyester prices.

33 Energy Costs in the Supply Chain

34 World Stocks/Use v Spot Futures C/LB Spot Futs S/U Jun-99 Oct-99 Mar-00 Aug-00 Jan-01 May-01 Oct-01 Mar-02 Aug-02 Jan-03 Jun-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Mar-06 Aug-06 Jan-07 Jun-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Oct-09 Mar-10 Aug-10 Source: ICAC Cotton World Statistics September 2010

35 The Dollar Outlook US Budget Deficit Fiscal 2011: 1.66 trillion US Public Debt end 2011: 15.8 trillion 42 cents in every dollar spent must be borrowed or printed. Interest payment on National Debt: $430 billion p.a. About 1/3rd of tax receipts

36 The Dollar Outlook For every 1% in interest rate increase, the interest on National debt will rise approximately 150 billion dollars (35%) National Debt increases by more than the annual budget deficit, because it includes offbudget items like appropriations for Iraq/Afghanistan wars.

37 Gold: The Ultimate Hard Currency

38 Futures Market: Index Funds Moving in from bond markets. Global Bond v Commodity Markets (Trillions): Bonds: USD 85 Commodity Futures: USD 1.2 Commodity OTC: USD USD Trillions OTC Futures Bonds Bonds Commodities

39 Increasing Commodity Index Products

40 Cotton (lbs) per Gold Oz.

41 CRB & Gold in USD

42 Price Outlook A new price arena? Limited scope for production increases Increasing consumption. Weak Dollar outlook. Strong long term Prices Security & Sustainability of Supply

43 Sustainability & Traceability No longer buzzwords. Social and environmental credentials = core product attributes. The Cocoa example.

44 The Cocoa Example: Initiatives & Brands

45 Sustainability in the Cotton Supply Chain Retailer/brand needs control & visibility of supply chain to ensure: Security of Supply Security of Price

46 Price Discovery

47 Cotton Futures Market Global Cotton Prodn USA 12% Suitable for Price Discovery? US cotton delivery only 12% of world prodn. 34% of world trade. Not enough physical supply. Operational imbalance in the futures market. INDIA 23% CHINA 31% ROW 34% Global Cotton Exports INDIA 18% UZB 10% OTHER 38% USA 34%

48 A new vehicle for price discovery is required. Needs to allow delivery Share of Global Cotton Production of cotton from Australia & Brazil. OTHERS 26% CHINA 32% China, India, Africa & CIS need to follow, but more difficult. AUS 2% BRAZIL 5% USA 12% INDIA 23%

49 Conclusions Acreage & yield limitations. Inflationary price pressures. Global Consumption. Security Of Supply controlling origin ensuring sustainability & traceability obtaining price stability. Proper Price Discovery

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