According to the latest data of the US Department of Agriculture a 2.2 million cotton bale reduction to the global production forecast (to 113.9 million) and a 1.6 million cotton bale increase to the global consumption forecast (to 115.6 million).
The blend of a smaller cotton crop and higher offtake caused the forecast for 2020-21 concluding stocks to drop 3.9 million cotton bales to 97.5 million.
Although this is a substantial decrease relative to figures suggested in previous months, the present estimation for cotton stocks remains very high by past standards.
COVID-19 is still a great threat to the global economy forcing uncertainty and pushing down global cotton demand.
When COVID-19 hit forced spinning mills to shut globally cotton stocks climbed and, in the years, surrounding the highest levels of Chinese reserves (in 2013/14 and 2014/15 global ending stocks were 99.9 million and 106.8 million) were warehoused supplies higher than they are expected to be at the end of 2020/21.
In the meantime, world mill-use is predicted to recover in 2020/21 (was 102.2 million bales in 2019/20), but the projection of 115.6 million cotton bales is still below the volumes over 120 million from 2017/18 and 2018/19.
Most worldwide benchmark prices
Over the past month, most worldwide benchmark prices augmented.
The NY March futures contract climbed from 70 cents/lb to 74 cents/lb. Cotlook’s A Index rose from 76 to 80 cents/lb.
While the China Cotton Index (CC Index 3128B) increased from 100 to 102 cents/lb. In domestic terms, values climbed from 14,500 to 14,700 RMB/ton. The RMB strengthened against the USD, from 6.60 to 6.53 RMB/USD.
Indian cotton prices (Shankar-6 quality) increased from 69 to 71 cents/lb. In domestic terms, values increased from 40,200 to 40,700 INR/candy. The Indian rupee was steady against the USD near 74 INR/USD.
In international terms, Pakistani prices decreased from 74 to 72 cents/lb. In domestic terms, prices eased from 9,700 to 9,500 PKR/mound. The Pakistani rupee was steady against the USD near 159 PKR/USD.
In the US, due to the drought in West Texas and the series of hurricanes in the growing season, a reduction in the cotton production estimate the U.S. had been expected for several months. This month, the forecast for the American crop was lowered from 1.1 million bales to 15.9 million.
Numerous other countries also saw cotton harvest expectations decrease, and other notable reductions were made for India (-500,000 bales to 29.5 million), Pakistan (-500,000 bales to 4.5 million), and Australia (-100,000 bales to 2.4 million). The present forecast for Pakistan calls for the lowest level of production since 1983/84.
Most important changes to country-level consumption figures were optimistic. These included the 1.0 million bale increase for India (to 24.0 million), a 500,000-bale surge for China (to 38.0 million), and a 200,000-bale rise for Pakistan (to 10.0 million). Thailand was the only country with a prominent decrease for 2020/21 mill-use (-125,000 bales to 700,000).
The international business is estimated to surge slightly, increasing 330,000 bales to 43.2 million. In terms of imports, the largest updates were for China (+500,000 bales to 10.0 million), Pakistan (+400,00 bales to 4.7 million), Bangladesh (-400,000 bales to 6.9 million), Thailand (-120,000 bales to 700,000), and Indonesia (-100,000 bales to 2.8 million).
For exports, the major changes were for the U.S. (+400,000 bales to 15.0 million), Argentina (+125,000 bales to 550,000), and Australia (-100,000 bales to 1.4 million).
The latest USDA data revisions highlight dissimilar cotton supply and demand related influences on cotton prices. From one side, there is the global production deficit in 2020/21. On the other side, there is a massive accumulation of global stocks that occurred in 2019/20.
Macro influences
Macro influences are also diverse. The international pandemic patient rise has been a result of surges in many locations triggering new restrictions on consumer activity.
This will distress overall economic growth, which is connected with cotton demand. It can also have more impact by closing more brick-and-mortar retail outlets.
Yet, apparel consumers and retailers have had nearly a year to adjust to COVID-driven market situations, and many sales have switched online.
Into this multi-dimensional influence, the US forced a ban on products made with fiber grown or processed by the Xinjiang Production and Construction Corps (XPCC) or its subsidiaries.
XPCC produces about a third of all cotton grown in China. The traceability requirements to prove or disprove XPCC content are unknown.
Business lawyers have indicated that the ban includes third-party countries that import intermediate textiles from China and convert them into goods that are eventually sent to the U.S.
The implication is that China could meet its direct U.S. import demand three times over using the foreign fiber and yarn it has already been getting from the rest of the world.
Though, China also exports a good amount of fabric. With the ban extending to third party countries, it could be said that the ban could inspire China and other countries to import more from non-Chinese sources.
But China could also hit back, and China has demonstrated a willingness to respond. Instances include the series of supplemental tariffs China placed on US goods since 2018 and the unofficial ban imposed on Australian cotton in reaction to criticism over human rights abuses in Xinjiang. If China does respond, it could be predicted to be harmful to global cotton demand and prices.
