RECENT PRICE MOVEMENT

All benchmark prices decreased over the past month.
•The July NY/ICE futures contract dropped from 93 to 77 cents/lb between early April and the present.
•The December NY/ICE futures contract, reflective of price expectations after the onset of the 2024/25 harvest, fell from 84 to 75 cents/lb over the past month. The steeper drop in July prices narrowed the separation between values for 2023/24 and 2024/25 delivery to just a couple cents. At the end of February, the gap was 15 cents/lb.
•The A Index decreased from 93 to 86 cents/lb over the past month.
•The Chinese Cotton Index (CC Index 3128B) decreased from 108 to 105 cents/lb in international terms. In domestic terms, values fell from 17,200 RMB/ton to 16,700 RMB/ton. The RMB was relatively stable against the dollar, near 7.23 RM/USD.
•Indian spot prices (Shankar-6 quality) fell from 93 to 88 cents/lb. In domestic terms, values decreased from 60,500 to 57,500 INR/candy. The INR held near 83 INR/USD.
•Pakistani spot prices fell from 94 to 88 cents/lb over the past month. In domestic terms, values held decreased from 21,500 to 19,700 PKR/maund. The PKR was stable around 278 PKR/USD.

SUPPLY, DEMAND, & TRADE

In May, the USDA issues its first complete set of numbers for an upcoming crop year.  For 2024/25, the USDA projects 119.0 million bales of global production and 116.9 million bales of global mill-use.  Both figures suggest an increase relative to 2023/24, when the world harvest is estimated to be 113.6 million bales and global mill-use is estimated to be 113.4 million bales. 

World ending stocks are forecast to be 83.0 million bales in 2024/25, which is 2.5 million bales higher than the figure for 2023/24.  The global stocks-to-use ratio is expected to hold at 71.0%.  After increasing nearly four million bales in 2023/24, Chinese stocks are projected to be essentially flat in 2024/25 (41.0 million bales, representing 105% of Chinese demand).  After decreasing nearly four million bales in 2023/24, stocks outside China are projected to rise +2.6 million bales in 2024/25 (to 42.0 million bales, representing 47% of demand outside China).

The largest year-over-year increase in production is forecast for the U.S., where the crop is projected to grow +3.9 million bales (to 16.0 million).  Other notable increases are expected for Brazil (+2.1 million bales to 16.7 million) and Turkey (+800,000 bales to 4.0 million).  Notable decreases are expected from India (-1.0 million bales to 25.0 million) and China (-500,000 bales to 27.0 million).

For mill-use, all significant year-over-year forecast changes were positive.  The largest increases were projected for Turkey (+800,000 bales to 7.5 million), China (+500,000 bales to 39.0 million), India (+500,000 bales to 25.2 million), and Pakistan (+500,000 bales to 9.8 million).

The global trade is predicted to increase +0.9 million bales to 44.9 million.  For imports, a decrease in Chinese shipments (-2.8 million bales to 12.0 million) is expected to be more than offset by increases in other locations, with the greatest gains expected in Turkey (+1.0 million bales to 4.7 million), Pakistan (+900,000 bakes to 3.7 million), and Bangladesh (+600,000 bales to 8.0 million).  For exports, the largest year-over-year changes are expected from the U.S. (+700,000 bales to 13.0 million), Brazil (+400,000 bales to 12.5 million), Turkey (-600,000 bales to 800,000), and Australia (-700,000 bales to 5.3 million).

PRICE OUTLOOK

Concern about exportable supply was a factor that provided lift for prices early in 2024.  More recently, those concerns appear to have reversed.  The outlook for 2024/25 suggests a crop year with more cotton available for export, while there could be a simultaneous pullback in Chinese import demand. 

The largest year-over-year increase in production in 2024/25 is predicted to come from the U.S. (+3.9 million bales, from 12.1 million in 2023/24 to 16.0 million in 2024/25), which is projected to hang on as the world’s largest exporter (the U.S. is projected to ship 13.0 million bales in 2024/25, followed closely by Brazil at 12.5 million bales).  However, the U.S. harvest has proven challenging to forecast in recent years due to the concentration of planted acreage in West Texas and repeated issues of drought in the region.

There has been rain in West Texas in recent weeks, which improves prospects for successful germination.  Nonetheless, the 2023/24 crop year proved the importance of moisture during the hotter period in late July and August, which coincides with the emergence of blooms and increased water needs by cotton plants.  The weather that far out is unknowable, and uncertainty about abandonment rates in West Texas can be expected to be important in determining how much exportable supply may come out of the U.S. in 2024/25.

Meanwhile, other sources of exports are expected to be plentiful.  The Brazilian harvest is projected to set a new record of 16.7 million bales (14.6 million bales in 2023/24 was also a record).  Australia is predicted to maintain production near its record (5.0 million bales in 2024/25, all-time high of 5.9 million set in 2021/22).  West Africa is also forecast to produce more fiber in 2024/25 (from 4.9 million bales in 2023/24 to 5.2 million).

With more cotton available for export, a question is how strong import demand might be.  China was the dominant source of import demand in 2023/24, with shipments more than doubling relative to 2022/23 (from 6.2 million in 2022/23 to 14.8 million forecast for 2023/24).  Much of China’s import demand in 2023/24 has been attributed to purchasing from the reserve system.  Those purchases easily exceeded sales from reserves that occurred between July and November (around four million bales), and the cotton purchased from the international market this crop year remains available to defer imports from the rest of world next crop year.  It remains to be seen how much fiber accumulated in 2023/24 will be leveraged against imports in 2024/25, but the potential for China to pull back on imports at the same time that exportable supplies are expected to rise may weigh on the market.

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.