RECENT PRICE MOVEMENT

Movement in benchmark prices was mixed over the past month.

• The December NY/ICE futures contract held between 70 and 76 cents/lb over the past month. Near the end of June, prices tested levels slightly above 75 cents.  More recently, values migrated to the lower end of the range.
• The A Index fluctuated between 81 and 85 cents/lb over the past month. Like NY/ICE prices, the A Index drifted higher towards the end of June, but later shifted lower.
• The Chinese Cotton Index (CC Index 3128B) moved lower over the past month, dropping from 102 to 97 cents/lb in international terms, dipping consistently below 100 cents/lb for the first time since late 2022. In domestic terms, prices fell from 16,200 to 15,600 RMB/ton.  The RMB was stable against the dollar, near 7.27 RMB/USD.
• Indian spot prices (Shankar-6 quality) increased slightly, rising from 85 to 88 cents/lb over the past most month. These gains reversed the small decline registered the month before.  In domestic terms, values rose from 56,000 to 58,200 INR/candy.  The INR held near 83 INR/USD.

Pakistani spot prices fell from 86 to 80 cents/lb.  In domestic terms, values dropped from 19,700 to 19,300 PKR/maund.  The PKR was steady around 278 PKR/USD.

SUPPLY, DEMAND, & TRADE

The latest USDA report featured a notable increase to global production in 2024/25 (+1.1 million bales to 120.2 million bales) and a marginal update for global mill-use (+258,000 bales to 117.2 million bales).  Revisions to figures for previous crop years (mostly upward revisions to Indian and Malaysian consumption) drove a reduction in expectations for 2024/25 beginning stocks (-1.7 million bales to 79.3 million).

The net effect of the changes on the forecast for global ending stocks in 2024/25 was a -866,000 bale decrease, pulling the figure to 82.6 million bales.  Despite this month’s downward revision, the current forecast indicates the largest warehoused supply since 2019/20 (86.3 million bales).  Apart from the crop year most affected by COVID, the current forecast suggests the highest level of world stocks since 2015/16, when China was in the process of lowering its reserve supplies.

A significant country-level change for ending stocks was made for the U.S., where the projection was increased +1.2 million bales.  This brings the current forecast for U.S. stocks at the end of 2024/25 to 5.3 million bales (+2.1 million bales higher than it was in 2023/24).  Outside of 2019/20 (7.1 million bales), this would represent the highest volume of U.S. stocks since 2008/09.

For production, the largest country-level changes for 2024/25 were for the U.S. (+1.0 million bales to 17.0 million), China (+500,00 bales to 27.5 million), and Pakistan (-500,000 bales to 6.0 million).

For mill-use, the largest country-level changes for 2024/25 were for India (+300,000 bales to 25.5 million), Malaysia (+275,000 bales to 600,000), and Pakistan (-300,000 bales to 9.5 million).

The global trade forecast for 2024/25 decreased -357,000 bales to 44.6 million.  In terms of imports, the largest updates were for Pakistan (+200,000 bales to 3.9 million) and China (-500,000 bales to 11.5 million).  In terms of exports, the only update over 100,000 bales was for India (-400,000 bales to 1.5 million).

PRICE OUTLOOK

Near the end of June, the USDA issued a new figure for U.S. planted acreage.  The update suggested +1.0 million more acres were planted for 2024/25 than was previously estimated.  This increase lifted the expected amount of cotton acres to 11.7 million, which is 14% higher than the volume in 2023/24.

However, recent crop years have proven that planted acres are only part of the story when it comes to U.S. production.  This is because of the concentration of plantings in West Texas, where there is little irrigation and susceptibility to dry conditions.  Persistent drought in recent years resulted in important divergences between U.S. planted and harvested acres.

Despite more moisture and a better start for 2024/25, it is notable that the USDA’s increase in harvested acres in July was only about half as large as the increase in planted acres (+540,000 harvested acres, from 9.1 to 9.7 million acres).  Isolated thunderstorms continue to bring precipitation to West Texas, but crop condition ratings have been fading in recent weeks.

Nonetheless, additional planted and harvested acreage drove a one million bale increase to the forecast for U.S. production.  At 17.0 million bales, the current figure represents the largest U.S. harvest since 2021/22.

Other major exporters are also expected to have large crops in 2024/25.  Brazil is forecast to set another record at 16.7 million bales.  Australia is expected to produce 5.0 million bales, which would rank among its top three harvests.  West Africa is expected to collect a crop that would rank in its top five.  The sum of exportable supply (production less domestic mill-use) from these markets is projected to easily set a record in the upcoming crop year.  With all these major exporters expected to produce healthy volumes, a pressing question for the market is – where are they going to sell all of that fiber?

China was a major buyer in 2023/24, with much of the strength in Chinese import demand tied to purchases by the reserve system.  The buildup in Chinese reserves in 2023/24 may make a repeat of strong government-driven buying in 2024/25 less likely.  While USDA forecasts for 2024/25 have been tracking China’s production gap (Chinese mills are expected to use 11.5 million more bales than are grown in China in 2024/25), it is also possible that bales accumulated in reserves in 2023/24 could be leveraged against imports in the new crop year.

This raises the question of how strong mill-driven demand in China and beyond might be in the new crop year.  The world’s spinning mills have been suffering from a combination of falling raw material costs (which imply financial losses against any inventory) and sluggish downstream order placement.  A global macroeconomic bottom may be forming with parts of Europe pulling out of recession and the latest U.S. inflation and employment numbers giving the Federal Reserve more room to lower interest rates.  It remains to be seen when bottoms in fiber prices and economic conditions may be reached and how strong the eventual recovery might be.

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.