Source: INTERNATIONAL COTTON ADVISORY COUNCIL, 12/1/16

Despite weak global demand for cotton and higher production in 2016/17, international cotton
prices have remained elevated, with the Cotlook A Index averaging 79 cents/lb during the first
four months of the season. The unanticipated shortfall in production in 2015/16 led to a 14%
decline in both world stocks and in stocks outside of China, which pushed prices up at the end of
last season. Prices have remained high as the bulk of the 2016/17 crop is only just now reaching
the international market. In addition, the currency crisis in India is temporarily exacerbating the
situation, since that country is the world’s largest producer of cotton and second largest exporter.

Insufficient supplies of the new notes have led to a currency crisis, since much of the Indian
economy operates on a cash basis, including payments to farmers. This has led to delays in sales
of cotton and shipments to ports, creating shortages in the domestic market as well as reducing
supplies to the global market. However, the effect of the crisis will be limited as the crisis is likely
to be resolved in the near future.

Due to the delay in Indian cotton reaching the global market, other countries may benefit from
increased exports in the short term. Bangladesh is expected to be the largest importer of cotton
in 2016/17 for the second consecutive season as its mill use continues to grow, with imports
expanding by 1% to 1.4 million tons. Bangladesh, which imports from India may use cotton from
other countries for its immediate needs. Exports from the United States are projected to increase
by 29% to 2.6 million tons, remaining the world’s largest exporter. The sizeable crop anticipated
in Australia is likely to cause its exports to increase by 21% to 750,000 tons. Exports from Burkina
Faso and Mali, the sixth and seventh largest exporters, are expected to increase by 13% to
295,000 tons and by 17% to 255,000 tons, respectively, as a result of larger crops. Cotton from
these origins may replace some of India’s exports if their crops reach the global market sooner.

Indian cotton exports are expected to fall by 34% to 825,000 tons in 2016/17.

After declining by 1% in the previous season, world cotton mill use is expected to remain stable
at 24.2 million tons in 2016/17. Cotton consumption is projected to remain stable in the top three
consuming countries: China at 7.4 million tons, India at 5.2 million tons and Pakistan at 2.3 million
tons. Higher cotton prices and lower demand for cotton yarn from China have limited growth in
cotton mill use in India and Pakistan.

World cotton production is projected to rise by 7% to 22.5 million tons. Although India’s cotton
area contracted by 8% to just under 11 million hectares, production is unchanged from 2015/16
at 5.8 million tons. The average yield increased by 9% to 526 kg/ha. Output in China shrank by
4% to 4.6 million tons while production in the United States rose by 24% to 3.5 million tons.
Pakistan’s cotton production increased by 24% to 1.9 million tons in 2016/17. Brazil’s cotton
production is forecast to increase by 8% to 1.4 million tons.

Despite remaining stable, world cotton consumption is forecast to exceed world production by 1.7
million tons, which also contributes to firm cotton prices in 2016/17. As a result, ending are
projected to shrink by 9% to 17.4 million tons, which represents 72% of expected mill use.