Market Analysis: Understand The Description Of American Cotton Planting Intention

Recently, NCC and the U.S. Department of Agriculture have made an early prediction on the U.S. cotton planting area in 2023. At the end of March, USDA will also make an estimation report on the U.S. cotton planting area. In this regard, the author looks forward to the USDA data at the end of March based on previous years' data and current U.S. data.

According to the reports of various agencies on the estimation of American cotton planting in recent years, the estimated fluctuation value of American cotton planting area data in the market is 1% - 10%, of which 1% - 5% is the largest difference. The current USDA Outlook Forum estimates that the area of American cotton planting in 2023/24 will be 11.4 million acres, and NCC estimates that the area of American cotton planting in 2022/23 will be 10.9 million acres Planning and reasoning of harvest data, as well as the influence of planting profit, grain cotton income ratio, weather and other factors, it is expected that the USDA will give an estimated planting area range of 1050-11.97 million acres of American cotton in March.

The cotton planting area of the United States in 2023/24 will decline due to the reduction of grain cotton ratio income

Historically, the relationship between the expected harvest price of cotton relative to corn (2839, - 9.00, - 0.32%) and soybean (5585, - 11.00, - 0.20%) has played an important role in cotton growing regions. It can be seen from Figure 1, the relationship between the estimated historical U.S. cotton planting data and the grain cotton income ratio that when the grain cotton income ratio is higher than 0, the U.S. cotton planting area will decline; From mid January 2023 to mid February 2023, the cotton harvest futures price is 17 cents (17%) lower than the expected price at the beginning of 2022 on average; In the same period, the price of corn harvest will rise by 3% in 2023, while the price of soybean will decline slightly; Therefore, these relative crop prices indicate that cotton is less competitive than alternative crops this year. In addition, the high production cost of cotton is expected to further limit the net return of producers.

The cotton planting area of the United States in 2022/23 is still affected by drought

According to the US data report, in 2023, the cotton planting area of the US will shift to grain crops such as soybeans, corn, peanuts and wheat due to the impact of grain cotton ratio in the southeast, delta and southwest. However, in the west, NCC reports that due to the limitation of irrigation water, the cotton area of highlands will decline significantly (34%), and it is expected that corn and wheat will increase.

In addition, due to drought, the cotton abandonment rate in the United States is 18%, which is at the regional average level in the past decade. In 2023, the cotton planting area in the United States will be 10.9 million acres, and the estimated harvest area will be 8.9 million acres, 19.5% higher than the harvest area in 2022, but the 18% abandonment rate is still worrying, and the abandonment rate in the southwest is slightly higher than the average level. The latest seasonal outlook of the National Oceanic and Atmospheric Administration of the United States on the southwest region shows that the drought situation in most cotton growing areas in the region is expected to continue to develop until at least May.

To sum up, based on the above four factors, we may see that the cotton planting intention area issued by USDA at the end of March may be 1050-11.97 million acres, which is 1.6% - 4% lower than the actual planting area of 12.5 million acres in 2022/23, and it is difficult to break through 12 million acres.