Cotton piles up at warehouses globally

The world stockpiles of cotton are piling up giving less scope for investors on price rise. Cotton prices witnessed first weekly drop since November.

Interestingly, hedge funds are bullish on cotton bets amid piling up inventories. The cotton production in the US and China is estimated to ease this season. India is poised to become world's largest cotton producer toppling China to the second slot during the 2015-2016 season.

According to the US Department of Agriculture, the global inventories of cotton at the end of season are expected to be second largest ever. However, these are slightly below the previous year's record level of inventories. Even after the reduction in the forecast on production, the supplies are expected to rise further.

These stockpiles are forecast to be second largest ever at the end of the season as reported by Bloomberg. The stockpiles are estimated to be enough for making over 127 billion T-shirts or 17 for each person on the earth. One side the cotton stocks are piling up and on the other side, hedge funds are increasing their bets to the highest in more than a year.

The threats to the American crop made the fiber best performing commodity this year. However, these gains couldn't continue as demand drops in the wake of slowing down of Chinese economy and slump in global commodity markets.

China has reduced its cotton imports by over 30 percent. This resulted in drop of global trade by over 20 percent, according to International Cotton Advisory Committee.

The Bloomberg Commodity Index, which tracks 22 components, is at 16-year low. The fiber's rally is dissipating. The cotton price rose 5.7 percent in 2015 and is now shedding the gains of 13 percent.

The cotton harvest in the US, the world's largest exporter, is damaged by heavy rains. The production in China and India, world's top two major cotton producers, is expected to ease further, according to a report by News Max Finance.

The US Department of Agriculture forecasts marginal drop in India's output. SIMA estimates India's production at 400 lakh bales or 40 million bales (bale= 170 kgs). The global cotton production in 2015-16 would be 23.68 million tons, 8.6 percent less than previous season's 25.90 million tons. The cotton production in China and the US is expected to be lower by 13.3 percent and 17.7percent respectively.

The Economic Times has reported that India is expected to become the world's largest cotton producer during 2015-16. Barring India, cotton production in all the major countries is expected to be less than the output in the previous season.

Southern India Mills' Association (SIMA) forecasts India will replace China for the top slot in cotton production.

Since there's no shortage of cotton, nothing can influence the price rise. Only a weather factor or something else that really changes the Northern Hemisphere producers' mind about cultivating cotton, observe commodity analysts.