RECENT PRICE MOVEMENT

Cotton benchmarks were either rangebound or moved slightly lower over the past month.

• March has taken over as the most actively traded NY/ICE futures contract.  March prices have been trending lower since late September, falling from 76 cents/lb to levels as low as 69 cents/lb in early November.   An upward move in late November briefly brought prices to 72 cents/lb, but more recent trading pulled prices lower.  The current value is 69 cents/lb.  
• The A Index moved sideways over the past month, holding within a range between 79 and 83 cents/lb.  The current value is 80 cents/lb.
• The Chinese Cotton Index (CC Index 3128B) declined slightly, from 98 to 95 cents/lb.  In domestic terms, prices fell from 15,400 to 15,200 RMB/ton.  The RMB weakened against the dollar, from 7.17 to 7.26 RMB/USD.
• Indian spot prices (Shankar-6 quality) eased from 83 to 81 cents/lb.  In domestic terms, values fell from 55,300 to 53,900 INR/candy.  The INR was steady near 84 INR/USD.
• Pakistani spot prices decreased from 78 to 75 cents/lb over the past month.  In domestic terms, values dropped from 18,000 and 17,300 PKR/maund.  The PKR was steady at around 278 PKR/USD.

SUPPLY, DEMAND, & TRADE

The latest USDA report featured increases to global production (+1.2 million bales to 117.4 million) and mill-use (+570,000 bales to 115.8 million). 

At the country-level, the largest changes for production were for India (+1.0 million bales to 25.0 million), Argentina (+150,000 bales to 1.8 million), Benin (+110,000 bales to 1.3 million), Brazil (+100,000 bales to 16.9 million), Burkina Faso (-120,000 bales to 600,000), Mali (-130,000 bales to 1.1 million).

For mill-use, the largest changes were for India (+500,000 bales to 26.0 million), Pakistan (+400,000 bales to 9.9 million), Vietnam (+100,000 bales to 7.0 million), and China (-500,000 bales to 37.5 million).

The global trade forecast increased 100,000 bales to 42.3 million.  In terms of imports, the largest updates were for Pakistan (+500,000 bales to 4.5 million), Vietnam (+100,000 bales to 7.0 million), Mexico (-100,000 bales to 825,000), and China (-500,000 bales to 8.5 million).  For exports, the largest revisions were for Brazil (+200,000 bales to 12.5 million), Benin (+100,000 bales to 1.2 million), Burkina Faso (-100,000 bales to 600,000), and Mali (-100,000 bales to 1.1 million).

PRICE OUTLOOK

The global market is still waiting for a definitive recovery in demand. 

Weekly U.S. export sales data are among the timeliest indicators for demand.  In recent weeks, there was a spurt in purchasing activity which lifted weekly sales over 300,000 bales.  The strength of that buying may have raised hopes for a lasting change of direction in buying activity, but more recent data revealed that buying interest had faded.  U.S. sales in the latest week of data were about half the volume of the previous two weeks.  Total U.S. commitment for delivery in 2024/25 is down -12% year-over-year, despite the crop being nearly +20% larger.

A source of support for exports globally last crop year was strong Chinese import demand associated with its reserve system.  Crop-year-to-date in 2024/25 (August-October), Chinese imports from all locations are down -47%.  The USDA is forecasting Chinese imports to decrease -6.5 million bales (or -43%, from 15.0 in 2023/24 to 8.5 million in 2024/25). 

Countries outside of China do not have policy instruments on the scale of China’s reserve system and purchasing from those markets can be considered more reflective of downstream demand.  U.S. export sales to countries outside China are mixed year-over-year, with increases to Vietnam, Pakistan, and Turkey and decreases to Mexico, Bangladesh, and Indonesia. 

A broader representation of demand can come from industry surveys.  The International Textile Manufacturers’ Federation (ITMF) regularly asks companies around the world about the state of demand.  In their latest report (November), they indicated improvement in the global fiber, yarn, and garment industry relative to 2023.  However, more respondents from the fiber and yarn segments continue to report that poor business conditions outweigh the good.  At the garment stage, there was a near balance between companies reporting good and poor conditions.  In 2023, there were about 50% more garment manufacturers reporting poor conditions, so there has been some notable improvement in that sector.

Further evidence of improvement in the garment sector has been coming from U.S. apparel import data.  Although apparel imports are a lagging indicator, reflecting upstream orders completed several months ago, the weight volume of cotton clothing shipments in October (latest available) was the highest since September 2022, when imports were coming off the record highs recorded in the first half of 2022.  Relative to the total volume in 2019, the seasonally-adjusted rate of imports in October was about +10% higher.  The recent surge in shipments to the U.S. narrowed a lingering divergence between consumer spending data and import volumes that has been as wide as 25 to 30 percentage points since the second half of 2022.

 Several factors have been proposed to explain the divergence between consumer spending and import volumes.  One of them is the rise in the de minimis channel, which bypasses the accounting process for traditional imports.  Another potential explanation is inventory management and conservative order placement in the period that followed the surge in inflation and increases in interest rates.  With U.S. consumer spending steady, stabilization in inventories implies an increase in imports and the latest data may be reflective of that process.

One of the best indicators of global cotton demand, however, is global economic growth.  The outlook for world GDP suggests sluggish conditions throughout 2024/25 crop year and beyond.  While a period of predictable growth may be a welcome change to the extreme volatility in recent years, this outlook suggests a slow improvement in demand conditions.

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.