Since the Spring Festival of 2024, after the relatively strong export data of U.S. cotton and the supply and demand forecast report of the U.S. Department of Agriculture were released, the market has become more concerned about the tightening of U.S. cotton inventories. The number of non-commercial long positions in ICE cotton futures has more than doubled from the beginning of January. , cotton futures prices have skyrocketed, breaking through the 100 cents/pound mark, reaching a maximum of 103.8 cents/pound, a new high since late September 2022. At the same time, the domestic cotton market behaved extremely calmly. After a slight compensatory increase, the price of Zheng cotton fell into shock and went out of the domestic independent market. What kind of trend will domestic and foreign cotton prices show in the future?
After a brief carnival, the upward momentum of international cotton prices weakened
The main reason for this round of rising international cotton prices comes from expectations of tight U.S. cotton supply and improving demand. The window period for U.S. cotton to be sold in the international market is before May each year. According to data from the U.S. Department of Agriculture, U.S. cotton export shipments have accelerated since December 2023, and as of March 8, the cumulative net contract volume has increased significantly by 40% year-on-year. In the context of a sharp reduction in U.S. cotton production, the resources available for U.S. cotton supply in the later period are limited. In particular, the delivery target of ICE cotton futures is U.S. cotton, which has a direct impact on cotton prices and provides sufficient speculation for speculative funds. During the same period, in December 2023 and January 2024, Australia’s cotton exports were 110,000 tons and 54,000 tons, a year-on-year increase of 65% and 12%. Australian domestic institutions predict that the remaining inventory of the previous year may be at a low level by the end of February 2024; Brazil Cotton export progress was slow before November 2023, but exports increased significantly after December. In January 2024, cotton export volume was 250,000 tons, a year-on-year increase of 1.1 times, which seems to confirm to a certain extent signs of improvement in global cotton demand.
From the perspective of the downstream textile market, since 2024, the textile exports of some Southeast Asian countries have experienced year-on-year growth. In January, Vietnam, Bangladesh, and Uzbekistan’s clothing exports all showed positive growth. The possible reason is that there is a demand for replenishment in the US and European markets after the 2023 Christmas shopping season, and the Red Sea channel crisis may have also triggered some panic replenishment. However, after seasonal and temporary purchases are completed, it remains to observe the economic recovery process of each country and whether it can actually boost the consumption of cotton textile products at the overall level.
But at the same time, there is a strong expectation for Brazil to increase production in the southern hemisphere in 2023/24. Especially since the end of January, the Brazilian National Commodity Supply Company, the Cotton Growers Association, and the international brokerage STONEX have adjusted Brazil’s production expectations to 3.28-3.37 million tons, and Australian cotton The association also raised its forecast for Australian cotton production. This means that the reduction in U.S. production may be compensated by Brazil’s increase in production, and the tight supply situation in international trade will be eased after the southern hemisphere cotton gradually becomes available in the second quarter. In the next 2024/25 year, as the dry weather in the United States improves and cotton prices rise, farmers’ enthusiasm for planting has also increased. The USDA Agricultural Outlook Forum predicts that the US cotton planting area in 2024/25 will be 11 million acres, a year-on-year increase 7.5%, cotton production is expected to return to a high level of nearly 3.5 million tons, and global cotton supply will gradually become looser in the long term.
Overall, the expectation of tight U.S. cotton supply has responded quickly to the rise in international cotton prices. U.S. cotton exports have been dismal in the past two weeks, and the pressure for a correction in cotton prices has increased. The demand situation in the later period will still be an important factor affecting the operation of cotton prices. However, considering the short-term International trade flows are relatively tight, and international cotton prices are expected to remain high for a period of time.
Domestic downstream new orders are insufficient, cotton prices are weak
Domestically, textile companies are actively replenishing their inventories before the Spring Festival. According to a sampling survey by the National Cotton Market Monitoring System, the national cotton industry inventory in February was 797,000 tons, an increase of 14.2% from January. After the Spring Festival, textile companies reported a lack of new orders and relatively limited motivation to purchase cotton. In February, 43.9% of companies were preparing to purchase cotton, a decrease of 10.4 percentage points from January and a decrease of 15.6 percentage points year-on-year. Judging from the market conditions of gold, silver, and silver in recent years, the start-up of downstream demand is not ideal. So far, the signs of recovery in spring orders are weak. It may be difficult to see very good performance in the short term. It may require an explosive demand in the home textile market like last year. growth returns.
The current domestic cotton supply is basically at its most abundant period of the year. The output in 2023/24 is higher than the previous market expectations. The national cotton market monitoring system estimates that the national cotton output is 5.83 million tons, and Xinjiang cotton output is slightly higher than the average of the past five years. It is estimated that as of the end of January, the social inventory of the cotton industry chain was at the highest level in the past ten years. After the Spring Festival, cotton market purchases and sales were tepid. Although railway and road freight rates were reduced after the holiday, Xinjiang cotton moved slowly to inland consumption areas, and shipping resources were mainly high-grade cotton resources. National cotton sales progress Year-on-year is slower than in previous years. According to the National Cotton Market Monitoring System, as of March 7, the cumulative sales of lint cotton nationwide were 2.47 million tons, a decrease of 760,000 tons year-on-year, and a decrease of 760,000 tons compared with the average of the past four years. However, after the international cotton price rose sharply, the price difference between domestic and foreign prices turned from positive to negative. As of now, the international cotton price is more than 900 yuan/ton higher than the domestic cotton price. The slowdown in cotton imports in the later period may provide opportunities for domestic cotton to accelerate sales.
Taken together, the textile market presents a state of “high expectations, weak reality” after the holiday. Finished product inventory begins to accumulate, and the continuity of superimposed downstream orders is relatively limited. It is expected that domestic cotton prices will continue to be weak and volatile.
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