RECENT PRICE MOVEMENT

Cotton benchmarks either decreased slightly or traded sideways over the past month.
• Recent movement in the December NY/ICE futures contract appears to be reinforcing the trading range between 67 and 75 cents/lb that has persisted since June. After testing values closer to the higher end of the range in late September, prices migrated lower. Around the start of November, prices were slightly below 70 cents/lb, but have since recovered to their current value near 71 cents/lb.
• The A Index decreased marginally, from 85 to 83 cents/lb, over the past month.
• The Chinese Cotton Index (CC Index 3128B) slipped from 101 to 97 cents/lb. In domestic terms, prices fell from 15,700 to 15,300 RMB/ton. The RMB weakened slightly against the dollar, from 7.05 to 7.16 RMB/USD.
• Indian spot prices (Shankar-6 quality) decreased from 87 to 83 cents/lb. In domestic terms, values fell from 57,400 to 55,100 INR/candy. The INR held near 84 INR/USD.
• Pakistani spot prices were generally stable around 80 cents/lb over the past month. In domestic terms, values traded between 18,200 and 17,600 PKR/maund. Current prices are 18,000 PKR/maund. The PKR was steady at around 278 PKR/USD.

SUPPLY, DEMAND, & TRADE

The latest USDA report featured small revisions to estimates for global production (-460,000 bales to 116.2 million) and mill-use (-515,000 bales to 115.2 million). Changes to historical figures lowered 2024/25 beginning stocks -609,000 bales (to 74.6 million).
The net result of these changes was a -574,000 bale reduction to the forecast for 2024/25 ending stocks (to 75.8 million). The current projection still ranks among the highest levels of global warehoused supply outside of 2019/20 (crop year most affected by COVID-19) and the crop years when China had extreme levels of supply in its reserve system (2012/13-2015/16).
At the country-level, the largest changes to production figures included those for Pakistan (-200,000 bales to 5.5 million) and Turkmenistan (-100,000 bales to 800,000).
For mill-use, the largest revisions were for Turkey (-400,000 bales to 7.1 million) and Pakistan (-100,000 bales to 9.5 million).
The global trade forecast was reduced -325,000 bales to 42.2 million. In terms of imports, the only notable change was for Turkey (-400,000 bales to 4.3 million). For exports, the only notable change was for the U.S. (-200,000 bales to 11.3 million).

PRICE OUTLOOK

A definitive result in the U.S. presidential election removed a considerable source of uncertainty from markets. Alongside a new Trump presidency, there have been new promises of tariff increases, which suggest a new round of adaptations for global supply chains.
Policies voiced by Trump for his second term include raising tariffs on goods sourced from all locations and potentially raising tariffs on goods sourced from China to as much as 60%. With Trump not taking office until January, the timing for the potential implementation of any tariff increases remains unknown. However, the threat of higher sourcing costs may prompt retailers and brands to pull orders ahead to secure inventory before tariffs can rise. Over the longer-term, higher sourcing costs resulting from higher tariffs may create a headwind for order placement.
While these sourcing questions are focused on downstream segments of the global textile industry, there are important questions that loom over the fiber market. In the first round of tariff increases (began in 2018, two years after Trump initially took office), there was consistent retaliation from China. U.S. cotton was included on the first list of goods hit by higher tariffs from the Chinese side. Much remains unknown about the trajectory of trade policies, but the past could suggest that China may again move to target U.S. cotton if the U.S. goes through with proposed changes to tariffs.
Relative to import needs, China has options. It expanded its government reserves last crop year and has an ability to leverage its reserve supply in 2024/25 and beyond. In addition, a record exportable supply is projected from major cotton exporters this crop year. Brazil is forecast to collect another record crop, while Australia and West Africa are projected to have substantial harvests. Despite dry conditions in West Texas and Hurricane Helene, U.S. output is expected to be more than two million bales higher than last crop year. The combined volume of exportable cotton in 2024/25 has been a factor contributing to downward pressure on cotton prices.
Meanwhile, there has been a persistently sluggish demand environment that has existed since the second half of 2022, soon after the global surge in inflation and increases in interest rates. More recently, there has been a pivot in central bank policy. Interest rates were lowered again by the Federal Reserve after its meeting on November 7th. Other central banks have also lowered rates in recent months. While these rate cuts are more favorable for economic growth, interest rates remain far higher than they were during stimulative periods after the financial crisis and after COVID. As a result, these decreases should be interpreted as releasing some pressure on economic brakes rather than boosting economic growth.
In contrast, China recently announced a $1.4 trillion package to support the economy. A dominant feature of the program was a set of measures to bolster local government finances. It remains unclear whether this will be sufficient to shore up consumer confidence and spending. There is speculation that additional support may be released if the trade dispute flares. In the meantime, the world’s textile supply chain is still waiting for the emergence of a source of consumer demand to pull order placement higher.

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.