Market Observation: Focus On The Trend Analysis Of Global Cotton Market Turbulence In 2024

Looking forward to 2024, the global economy will continue to move forward in twists and turns, and the overall cotton supply and demand situation will not change much compared with the previous year. Weak demand will still be the biggest factor restricting cotton prices for a period of time. The expectation that overseas high inflation and high interest rate environment will ease gradually materialize, and the inventory of textile and clothing markets in the United States and Europe will slowly decline, which will provide positive support for international cotton prices. The domestic economy recovered slowly, and the gap between cotton production and demand was made up by reserve cotton and imported cotton. The seasonal characteristics of supply and demand will still be the main operating logic of the market. It is necessary to pay close attention to the change of cotton planting area in various countries and prevent speculation on the supply side.

　　 （1） Macroeconomic situation at home and abroad

Looking forward to 2024, the trend of global geopolitical conflicts will face uncertainty, international trade will continue to be weak, and political turbulence in the year of multi country elections will inevitably affect the global political and economic situation. The report World Economic Situation and Prospects 2024 released by the United Nations on January 4 predicted that the world economic growth would decline from 2.7% in 2023 to 2.4% in 2024. The global inflation level has shown signs of slow decline. The Federal Reserve's monetary policy may once again turn to loose regulation, and global liquidity will tend to be loose and active.

Domestically, the Central Economic Work Conference has set the tone that in 2024, we should adhere to the principle of seeking progress while maintaining stability, promoting stability through progress, and building up before breaking down. From the emphasis on "stability" in the past two years to the more emphasis on "progress" and "building up", it will send a more positive policy signal. With the easing of the international environment, the normalization of economic and social operations and the continuous release of policy effects, the macro-economy is expected to further recover and stabilize. Goldman Sachs, UBS and other foreign financial institutions predict that China's economic growth rate will be about 4.8-5% in 2024.

It should be noted that although the macroeconomic situation at home and abroad will be better in 2024, there is still uncertainty in the process of foreign monetary policy turning. It is necessary to prevent the impact of changes in policy expectations and implementation rhythm on the recovery of the cotton market.

　 （2） International cotton market

In 2023/24, the cotton output of Brazil and Australia is expected to decrease year on year, but still remain at a historical high, of which the cotton output of Brazil is expected to exceed that of the United States for the first time. If the weather situation in the later period is better than last year, the probability of cotton production increase in the United States next year is high, so the cotton supply of major exporting countries will still be abundant in 2024. At the same time, with the shift of foreign monetary policy, the inhibitory effect of high inflation and high interest rates on consumption will gradually reduce.

1. America: Difficulty in new cotton expansion Weather is still the key factor

At present, the processing inspection of American cotton in 2023/24 is in the late stage, which is not satisfactory from the contracted shipment data of American cotton. According to the United States Department of Agriculture, by the end of 2023, the cotton inspection volume in the United States had reached 2.447 million tons, accounting for about 88% of the output (2.782 million tons). The cumulative net export contracted volume of American cotton is 1.396 million tons, accounting for about half of the output; The cumulative shipment volume was 712000 tons, a year-on-year decrease of 160000 tons. Although the relative price of cotton and grain has improved compared with the same period last year, and the competitiveness of cotton has been enhanced, the survey of American industry institutions shows that it is difficult to have a positive impact on the planting intention when the price of ICE futures is lower than 80 cents. In 2024, the cotton planting area in the United States may remain stable or decrease slightly. It should be noted that the El Ni ? o phenomenon is expected to gradually transition to neutral from February 2024, that is, the possibility of increased rainfall will increase. Therefore, the probability of the northern hemisphere cotton sowing date being affected by extreme weather may be lower than that of the previous year. If the weather conditions in the later period are better than that of last year, the probability of the United States cotton yield recovering in 2024/25 years will be higher. Nevertheless, the market still needs to pay close attention to the hype of weather changes on the supply side during the cotton growing period.

2. India: The new cotton planting may decline faster than that of last year

In this year, the peak period of seed cotton sales and lint cotton listing in India was earlier than that in previous years. By the end of 2023, the cumulative listing volume of cotton in 2023/24 was about 1.9821 million tons, and the Indian Cotton Association expected the output to drop to about 5 million tons. As of December 19, 2023, the minimum support price (MSP) acquisition of Indian Cotton Company has reached 153000 tons in total. Affected by the low price of cotton and the declining yield per unit area, the Cotton Association of India (CAI) estimates that the cotton planting area will decline by nearly 10% in 2024/25. The outdated seed technology of transgenic cotton still puzzles the cotton yield per unit area.

3. Brazil and Australia: slightly lower output compared with the previous year, and the overall output remains high

New cotton planting is under way in Brazil and Australia in the southern hemisphere. In recent years, the cotton planting in Brazil has been growing year by year. According to the statistics of the Brazilian National Commodity Supply Company, by the end of 2023, the cotton planting in Brazil in 2023/24 had been completed by 26.1%, with a year-on-year increase of 3.1 percentage points. In January 2024, the agency estimated that the cotton output in 2023/24 would be 3.099 million tons. This means that Brazil's cotton production will probably surpass that of the United States for the first time. At the beginning of new cotton planting in Australia, the production area was dry, and the cotton planting area may be reduced. However, in recent two months, the cotton production area continued to rain in a large range, and the planting intention and yield were expected to rise. The Agricultural Resources and Economic Research Bureau of the country estimated that the cotton planting area of Australia in 2023/24 was 413000 hectares, a year-on-year decrease of 28%; The output was 925000 tons, a year-on-year decrease of 26.1%, still 20% higher than the average in the past decade.

4. Global consumer demand is expected to improve slowly

The inventory of clothing and fabric wholesalers in the United States has continued to fall since September 2022, and by November 2023, the inventory of wholesalers has dropped to $33.306 billion. In 2024, the global inflation level is expected to fall back, and the central banks of developed economies will raise interest rates to the end. The inhibitory effect of high inflation and high interest rates on consumption will gradually reduce, and the purchasing power of major clothing consumer countries will also recover, which will help drive the gradual recovery of the global textile industry.

　 （3） Domestic cotton market

1. Production: cotton planting area is expected to decrease slightly

In 2023/24, the national cotton picking and selling were basically completed. According to the data of the national cotton market monitoring system, by the end of 2023, the country had processed 5.116 million tons of lint cotton, with a year-on-year increase of 776000 tons. According to the data of China Fiber Quality Monitoring Center, as of January 10, 2024, the national cotton has accumulated 5.08 million tons of public inspection, an increase of 34% year on year. According to the schedule, the output will be higher than the previous market forecast.

According to the recent survey on the intended planting area of cotton by the national cotton market monitoring system, the intended planting area of cotton in China will be 40.407 million mu in 2024, a year-on-year decrease of 99500 mu, or 2.4%. The main reason is that Xinjiang implements the adjustment of grain and cotton planting structure, guides the secondary cotton regions to quit cotton planting, and determines the target price subsidy scale of cotton to be 5.1 million tons, Compared with other economic crops, the income of cotton in the mainland is quite different. It is relatively laborious and time-consuming to plant, and farmers are more willing to switch to other crops.

2. Consumption: domestic demand drives the growth of cotton consumption

The central government has repeatedly stressed the need to give priority to expanding domestic demand and restoring and expanding consumption. Since March 2023, the monthly retail sales of clothing, shoes, hats, needles and textiles in China have continued to grow positively year-on-year, showing a good recovery trend. The export volume of textiles and clothing declined year on year, but the decline has narrowed month by month since August, and has generally kept warming up. It is expected that the increase of cotton consumption in 2024 will still be driven by domestic demand. The implementation of the national consumption stimulus policy will bring positive impetus to the rebound of domestic marginal consumption. The textile and clothing export situation will gradually stabilize under the rebound of the demand for replenishment from the United States and Europe.

3. Import: cotton import volume is expected to expand

The price difference between domestic and foreign cotton has gradually recovered to normal status from a significant upside down in 2023. The profit window of cotton import has been opened. With the addition of the National Development and Reform Commission's additional 750000 tons of cotton import sliding tax quota, the cotton import volume has increased significantly since September on a year-on-year basis. In 2023/24, China's cotton consumption is expected to have little year-on-year change. The cotton output will decrease significantly year on year. The expansion of the gap between supply and demand will increase the demand for cotton imports. It is expected that the cotton imports will expand in 2024.

4. Inventory: It takes time to digest the yarn inventory

After the start of 2023/24, the domestic cotton supply is relatively sufficient. Imported cotton, reserve cotton and domestic cotton continue to come on the market to increase market resources, and the sales of domestic new cotton is slow. The national cotton market monitoring system shows that by the end of 2023, the cumulative sales of lint cotton nationwide are 906000 tons, a decrease of 158000 tons over the same period, 751000 tons less than the average of the past four years, Compared with the same period of previous years, the progress slowed down significantly. In addition, the domestic cotton yarn inventory continues to be at a high level, and the cotton yarn import volume continues to grow significantly year on year, which inhibits the upstream cotton digestion, and the inventory pressure needs to be relieved for a certain time.