For its 12th anniversary, the French Cotton Association has pleasure in welcoming you once again to this beautiful town, Deauville.
On behalf of the Management Committee, may I thank you all for coming to participate in our works.
We are indeed no less than 250 people of 30 different nationalities in this room tonight and this shows the interest that you have in our Association and encourages us to increase our efforts in the future to deserve your support. Let me take this opportunity to greet our honoured guest this evening, Mr Hervé CRONEL, who will have the pleasure to deliver a message from the Secretary General of the International Organisation of the French-World, President Abdou Diouf.
At this time last year, my predecessor, Mr Yves Christophel, was delighted with the sharp increase in prices. Indeed, the Cotton Outlook Index had in one year, gone from 65.00 usc/lb to 111.00 usc/lb, mainly under the effect of a reduction of the world stocks.
Who could have possibly imagined at that time that we had only come half way!
Again, in an atmosphere that I would qualify as almost surreal, the rates have reached stratospheric levels never seen before to peak at 234.40 usc/ld on 7 April 2011 according to Cotton Outlook.
How can we explain this sudden rise?
We can mention in no particular order:
·General move in the increase of the agricultural commodity market;
·Increase in the demand for cotton after the crisis of 2008/2009;
·Loss of production due to the flooding in Pakistan;
·Low stocks in the world at the beginning of the campaign in 2010/2011 (8.6 million of MT) representing less than 40% of the world consumption;
·Limitations of Indian exports;
·Low stocks certified US;
·Tension on the spot month in the United States, inability for the mill owners to fix their buying contracts on call;
·Slow decrease in the average world output to 738 kgs/ha.
Throughout the year 2010, the rise was continuous and sustainable, allowing the mill owners to use this to affect the price of their cotton thread.
Had the cotton market come into a new era with producers finally being paid the fair price and allowing mill owners to use this rise to affect the price of their final products?
Unfortunately, this upward movement has abruptly seized up.Since middle April 2011 demand has suddenly dried up.
The cotton market has therefore gone from a dream to a nightmare.
Cotton rates have gone down by 40% over the last few months causing considerable damage in the cotton industry : producers, traders and mill owners.The consequences, be they financial or commercial, will I fear, be felt over the next few years.
The two main reasons are probably the lack of the financial capacity of certain actors on the market, in particular the mill owners, incapable of meeting their needs of working capital which have tripled over the last two years together with the impossibility of the consumer to accept any rise in price, be it small, of the finished products, the current distribution pattern only allowing this with difficulty.
The effect of the increase in prices ended up by having an impact on the volumes knowing that cotton is seriously competed with by artificial fibres in particular, which have found it easier to smooth out the changes in prices.
The main words that could characterise this past year would most certainly be “extreme volatility” which has affected most of the commodity markets be they agricultural or not, powered by very low interest rates and therefore an abundance of capital looking for a high return on a short or medium term.
In this complicated context which sometimes gives rise to important differences of rates even over a short period of time, it can be very tempting not to honour ones commitments.
The moral, financial and commercial consequences can be enormous. In 2011, according to my estimations, no less that 500 million dollars were lost through world negotiations to cancel contracts. Over and above the important financial loss to be absorbed, it is the whole functioning of a network that could be questioned not only regarding trust but also the true inviolability of contracts.
If words are no longer considered as “gold”, should one come back to short-term sales only ? Or even sales at fixed prices ?
It is useless to want to draw too dark a picture of the future but in this very volatile context, we should be careful to keep our moral values very present in our minds.
Commercial anarchy could mean the death of our networks.
Afcot has always defended these values with great force and shall continue to do so in the future.
One of the missions of our Association is also the updating of the European General Rules concerning the practices of cotton trade today.
In this context we will soon get down to adapting the RGE to new provisions of the arbitrage reform which came into force on 1 May 2011 by official decree.
This Ministerial Decree has for objective to reinforce the French arbitrage law that is in force in the international domain, thanks to its flexibility and the legal security it gives. The new objectives are clearly stated.First of all, to reinforce some of the legal advantages, but also to bring supplementary information to this text in order to improve its efficiency, and especially, and I believe this point to be of particular importance in a market that has become world-wide, to integrate legal measures that have proved their usage value in other foreign countries.
We shall also continue to organise seminars in common with our friends the African Cotton Association which enable us to strengthen our relationship, join our forces and increase our knowledge on common subjects.
These forums also enable us to discuss various subjects that we have in common and to progress together.
A cotton information platform is also available on the official web site of Afcot and is regularly updated by our Secretary General, Mr Gérard Kassarian.
May I invite you to consult it regularly.
Not only will you find cotton information but also much useful information.
Such is the desire of Afcot to be of use to the French-speaking cotton community.Its missions, as you can see, are numerous and varied.Its Committee has been largely renewed and its aim is to produce transparent and fair commercial practices.I believe this concerns us all and will help us to carry out our jobs in a correct manner.
Your participation in our meeting today helps us morally to carry out our missions and encourages us to continue.
You can also do this by becoming a member of Afcot for those who are not already.
Before leaving you, I would like to finish on an optimistic note.
Despite the recent drop in rates, they still remain at a historically high level and we can remain optimistic that they shall continue to stay on the higher levels of the past 25 years.
I thank you for your attention and wish you an excellent evening.
