Recent trends and prospects of the global cotton market

From the demand point of view, the US cotton export sales report released last Friday showed that as of the week of May 16, US cotton sales increased by 203,000 bales, an increase of 30% from the previous week and 19% from the average of the previous four weeks. China's purchases accounted for a high proportion, and high demand supported the US cotton price.
On May 30, at the 2024 China Cotton Industry Development Summit Forum hosted by the China Cotton Association, Michael Edwards, chairman and editor-in-chief of the British Courtluke Co., Ltd., delivered a speech entitled "Recent Trends and Prospects of the Global Cotton Market".
Michael pointed out that the future world cotton pattern may undergo structural changes, mainly in terms of production, exports and shipments. In terms of production, the weather in Texas, the United States, was not good in 2023, which cut nearly half of the production. China purchased about one-third of the cotton in the United States in 23/24, which made the US cotton in a tight situation, which was different from the loose situation in other cotton supply markets. Australia has had abundant rainfall recently, and the production has tended to increase. Brazil's cotton production is also expected to set a new record next year. In terms of exports, the contribution of the southern hemisphere to the cotton export market has increased significantly, and Brazil has approached the proportion of the United States in the global cotton export market. These structural adjustments will have an impact on the market. In terms of shipment, the seasonal shipment volume of cotton has changed. In the past, there was often a shortage of supply in the third quarter, and it was necessary to wait for cotton from the northern hemisphere to be listed. This is no longer the case.
One of the characteristics of market fluctuations from the beginning of the year to now is the fluctuation of basis. The tight supply of US cotton and the sufficient supply of other cotton-producing countries have caused large fluctuations in the basis of non-US cotton. The inverted futures and spot prices in the US supply market have made it impossible for international cotton traders to hold US cotton positions for a long time, which is one of the reasons for the decline in futures prices. The current structural changes in the market in time and space may continue, and the ice market will not allow cotton traders to complete hedging through long-term positions in the future.
From the perspective of China's import demand and its relationship with the international market, the correlation between China's cotton prices and international cotton prices is very high. This year, China is in a replenishment cycle. From January to April, China's cotton imports have reached 2.6 million tons, and this figure may rise to about 3 million tons within the year. Without China's strong imports, it is questionable whether international cotton prices can be stabilized.
In 2024/25, it is expected that the cotton production in the United States may increase significantly, and it is still uncertain whether the cotton production capacity of Brazil can reach 3.6 million tons. In addition, climate disasters such as floods and high temperatures will also have a great impact on the production of cotton-producing countries such as Pakistan, India, and Greece, and the world's cotton production may be greatly affected.
The global measures taken to respond to climate change will also have an impact on the future consumption of cotton. Strategies to reduce waste, improve durability, and promote a circular economy, as well as the increase in demand for sustainable and biodegradable materials, will put pressure on the future consumption of cotton.
Overall, the price of cotton has fluctuated to a certain extent in the past few years after the end of the epidemic, and the market has not been profitable. The continuous shift of global supply from the northern hemisphere to the southern hemisphere has brought challenges to risk management. The scale of China's imports will help stabilize the global cotton price this year, but the uncertainty of the future market is strong.
According to the data of the General Administration of Customs, my country imported 340,000 tons of cotton in April, maintaining a high level, an increase of 325% over the same period last year, commercial inventory decreased by 520,000 tons, and industrial inventory increased by 6,600 tons, indicating that the domestic cotton destocking efforts are relatively large, but the corporate inventory is at a high level. If the terminal demand is not good, the company's ability to digest inventory will gradually weaken. In April, my country's exports of clothing and clothing accessories fell by 9.08% year-on-year, clothing retail sales fell slightly month-on-month, and terminal consumption was poor.

According to feedback from some cotton farmers, processing enterprises and agricultural departments of prefectures, cities and counties in southern Xinjiang, since May 18, some cotton areas in the three major cotton areas in southern Xinjiang, including Kashgar, Korla and Aksu (Aral, Kuche, Wensu, Awati, etc.), have successively encountered strong convective weather, and strong winds, heavy rains and hail have caused damage to some cotton fields. Cotton farmers have taken various measures to actively remedy the situation, such as timely water replenishment, spraying foliar fertilizers, replanting and reseeding.
Due to the limited impact of this adverse weather, farmers timely replanted and replanted early-maturing varieties (growing period of 110-125 days, enough growing period before the frost period in late October), and strengthened field management and water and fertilizer follow-up in June-August. The impact of the disaster can be compensated. In addition, the weather in major cotton areas in northern Xinjiang is good and the accumulated temperature is high, and the growth of cotton seedlings is better than in the previous two years. Therefore, most of the industry maintains the judgment that "the planting area will be slightly reduced and the output will increase slightly" in Xinjiang in 2024/25.
At present, textile enterprises are in a loss-making state, textile enterprises have weak demand, and cotton sales are difficult to increase. At the same time, the domestic import of large quantities of American cotton has also put pressure on the domestic supply side. Although market sentiment has improved, the current supply and demand pattern still cannot support the continued upward trend of cotton prices. It is recommended to maintain a wait-and-see attitude for the time being.
The supply and demand of the cotton market is loose, and the decline in yarn prices has a negative feedback upward, and there is a need for adjustment in cotton prices. Planting area and weather are the main expectation deviations in the international market. At present, the weather in the main producing countries of market transactions is normal, and the expectation of high yield continues. The area report of the United States may increase at the end of June. Domestic consumption is the main expectation deviation. At present, the downstream off-season of market transactions is strengthened, but macroeconomic stimulus may boost future consumption. It is expected that cotton prices will fluctuate in the short term. The specific situation needs to be determined according to the future supply and demand situation, and the supply and demand changes should be focused on.