2019/20 Cotton Fears Worst

On the 21 and 22 February, the United States Department of Agriculture held the ninety-fifth prospect forum to predict the future planting, trade and supply and demand trend of cotton, soybean and corn.

After the announcement of the forum's specific report on February 22nd night, the US cotton suffered a sharp fall from the negative factors and dragged Zheng cotton back to the shock zone.

In this paper, we will analyze and judge the contents of the specific report.

First, 2018/19 year to go inventory support cotton prices are strong

The first part of the report analyzes the global cotton market in 2018/19: global cotton production is expected to decline by 4.2%, with the exception of Brazil and China.

Global consumer demand is rising steadily. The main driving force for growth is from India, Bangladesh and Vietnam. Bangladesh and Vietnam show strong demand for cotton, with a growth rate of 10.6% and 6.7%, while Turkey's financial crisis restricts the demand for domestic cotton mills. China's cotton demand is limited to the slowdown in textile exports and the sluggish domestic demand.

In the context of declining production and stable consumption, the global cotton market continued to go to the inventory level, and the final inventory fell further to 75 million 500 thousand packages, a low level of nearly seven years, supporting the strong international cotton price.

For the domestic cotton market, the demand factor has become the main driving force for the 18/19 cotton market in the current 2018/19 production.

In the view of speculative capital, the stock as a ballast stone keeps going down, and the gap between production and marketing will boost the tension between supply and demand.

So foreign cotton and commercial stocks may be the main way to make up for the shortfall.

Two, 2019/20 cotton production and marketing has great influence.

1) production may exceed expectations.

According to the Outlook Forum Report, if the weather is stable, international cotton production is greater than demand in 2019/20, cotton market will be pferred from stock to increase stock. The largest increment is from the US, and the output will increase by 22.3%.

The USDA's habit of predicting yield is from the planting area harvest area abandonment rate yield per unit level, and from the specific forecast data, we think that the increase of 22.3% is not radical.

First of all, the cotton planting area in the United States increased by only 1.1%, mainly due to the increase of cotton production cost ratio (compared to soybeans) and the anticipation of good agricultural weather.

Secondly, the harvest area (the estimated abandonment rate) and the forecast of unit yield are all objective and neutral. The average number of data used in the past years is used to judge, but if the weather condition continues to be favorable, the rate of abandonment rate and yield per unit will be reduced and the space for further repair will be reduced, and the output will probably continue to rise.

Therefore, the monthly USDA report in 2019 is likely to have a more than expected negative impact, resulting in a downward trend.

2) undervalued US cotton exports

Can you imagine that an American cotton trader on the eastern coast of the Pacific might consider a production plan for a Chinese pig farm on the western coast of the Pacific.

Recent Sino US trade talks and central document 1 indicate that the possibility of buying large quantities of American agricultural products is increasing. However, there is no mention of soybean and corn and DDGS.

However, in the domestic market, soybean meal has increased, and supplies are quite abundant. At the same time, the swine plague has expanded, and the commercial pig population has dropped significantly, and now it has spread to pigs, pigs, pigs and sows. It is expected that the pig farms will have less fatigue in the future, and the domestic market demand for feed, such as meal, corn, sorghum and DDGS will decrease significantly and continuously.

Under such circumstances, China's expansion of import demand for us cotton seems to be the best of both worlds.

Beans may still be imported in large quantities, but cotton trade between China and the United States will become more important in the future.

From the forecast of the forum's supply and demand balance in 2019/20, we can see that the US export volume (output and consumption) has increased by 4 million packages, while the export volume is expected to be only 2 million packages, and the export capacity is underestimated by 2 million packages.

The reason for the underestimation is that the forecasters have taken into account the retaliatory tax imposed on China's US cotton and the ample supply of 2019/20 in the world, and the fall in cotton prices has inhibited the export of US cotton.

However, if the trade talks succeed, the rate of taxing the US cotton will be abolished. China will buy a lot of US cotton in an expected way. The export potential of US cotton will still increase and form a weak and strong cotton pattern.