RECENT PRICE MOVEMENT

Movement in cotton benchmarks was mixed over the past month.

• Despite relatively wide intraday changes, movement in the March NY/ICE contract, values were constrained within the range between 79 and 89 cents/lb that has held them since early November.
• Prices for the December NY/ICE 2023 contract, reflecting market expectations for the 2023/24 crop year, have followed a gentle upward trend defined by a series of higher lows. That trend pulled prices up from 75 cents/lb in early November to values over 80 cents/lb.
• The A Index was stable over the past month, holding to levels near 100 cents/lb.
• Chinese prices represented by the China Cotton Index (CC 3128B) increased slightly in early January, from 97 to 101 cents/lb. In terms of RMB/ton, values rose from 14,900 to 15,200. The RMB strengthened against the USD over the past month, from 6.98 to 6.78 RMB/USD.
• Indian spot prices (Shankar-6 quality) decreased over the past month, easing from 103 to 97 cents/lb. In terms of INR/candy, values decreased from 67,000 and 62,000. The INR was steady near 82 INR/USD over the past month.
• Pakistani prices increased from 89 to 106 cents/lb. In domestic terms, prices rose from 16,500 to 20,000 PKR/maund. The PKR weakened against the dollar, from 224 to 228 PKR/USD over the past month.

SUPPLY, DEMAND, & TRADE

The latest USDA report featured decreases to global cotton production (-332,000 bales, from 115.7 to 115.4 million) and mill-use estimates (-846,000 bales, from 111.7 to 110.9 million bales). Beginning stocks were lowered 100,000 bales (to 85.3 million), and the net result for world ending stocks was a +372,000 bale addition. If the currently predicted volume of 89.9 million bales is reached, it will represent the second- highest volume of global warehoused supply since China stopped drawing down its reserves in 2015/16 (only behind the 98.4 million bales in 2019/20 with the onset of COVID).

At the country-level, the largest updates to production figures were for the U.S. (+438,000 bales to 14.7 million), Brazil (+300,000 bales to 13.3 million), and India (-1.0 million bales to 26.5 million).

For mill-use, the largest revisions were for India (-500,000 bales to 22.5 million), Indonesia (-250,000 bales to 2.2 million), and Vietnam (-100,000 bales to 6.4 million).

The global trade forecast was lowered -645,000 bales to 41.6 million. In terms of imports, the largest changes were for China (-250,000 to 7.8 million), Indonesia (-250,000 bales to 2.2 million), and Vietnam (-100,000 bales to 6.4 million). In terms of exports, the largest changes were for India (-250,000 bales to 3.1 million) and the U.S. (-250,000 bales to 12.0 million).

PRICE OUTLOOK

Although volatility has eased, historical price relationships continue to be disrupted. Most notably, the CC Index continues to trade at levels near the A Index. Traditionally, the CC Index is 15-20 cents/lb higher. Among the reasons for the traditional separation between these prices are differences in transport terms incorporated into each price. The CC Index includes delivery all the way to a mill, while the A Index includes delivery to East Asian ports. If transport costs were added to the A Index values, the CC Index would be lower.

For this reason, Chinese domestic prices are more competitive in the important domestic Chinese market than they traditionally are. Beyond the macroeconomic environment, this has likely contributed to weakness in Chinese import demand. This affects not only cotton fiber, but also cotton yarn. Crop-year-to-date (Aug-Nov), Chinese yarn imports of cotton yarn are down -56%, representing a decrease of -1.6 million bales.

Counterintuitively, Chinese fiber imports have been higher year-over- year so far this crop year (+59% Aug-Nov). However, shipments arriving in Chinese ports reflect business conducted in the past. Besides the simple time required to ship cotton from one country to another, an additional indication that shipments arriving this crop year were contracted months ago is the average landed cost. In November, the average value for fiber arriving in Chinese ports was 133 cents/lb. The wide separation between these landed values and current market prices is a symptom of the challenging business environment for mills, who are being asked to sell yarn at prices reflective of current market values. At the same time, they continue to take shipments for cotton bought at levels well over one dollar. Due to these price-related challenges, as well as issues associated with the macroeconomic conditions, recent mill demand has been weak. A more current representation of Chinese fiber demand comes from weekly U.S. export sales data. In those data, net new sales to China have totaled only +59,000 bales so far this crop year (data August 1st through week- ending January 12th), and the sum of cancelations has outweighed the sum of purchases since September 8th.

While demand-side arguments have been dominant, supply-related concerns may garner increasing attention in coming months as northern- hemisphere growers begin to compare prices for cotton relative to those for competing crops. The volatility over the past year can be expected to make these decisions difficult, and uncertainty will likely linger over acreage forecasts. Nonetheless, cotton prices have not been able to keep up with prices for other crops, notably corn and soybeans, and decreases in plantings can be expected in many countries. Growers in the U.S. rank among the most responsive to changes in relative prices, and an early U.S. acreage estimate was recently released by Cotton Grower magazine. Their survey-based figure is based on a survey of growers and suggested U.S. plantings could reach 11.6 million acres in 2023/24 (plantings were 13.8 million acres in 2022/23). Models based on ratios of cotton prices relative to competing crop prices suggest that eventual U.S. planted acreage could be lower. The National Cotton Council will release its survey-based forecast for planting on February 12th. The USDA will release preliminary analyst-based estimates for U.S. plantings alongside their first set of global supply and demand figures on February 24th.

Disclaimer: The information contained herein is derived from public and private subscriber news sources believed to be reliable; however, Cotton Incorporated cannot guarantee its accuracy or completeness. No responsibility is assumed for the use of this information and no express or implied warranties or guarantees are made. The information contained herein should not be relied upon for the purpose of making investment decisions. This communication is not intended to forecast or predict future prices or events.