Market Analysis: The Enterprise Is Signing A Contract With American Cotton

According to the USDA Export Weekly Report, the net export contracted volume of American upland cotton in 2024/25 in the week of June 21-27 was 12900 tons, of which 69900 tons were contracted by China. After signing 80700 tons on June 14-20, Chinese buyers continued to purchase American cotton in the next year with a "big hand" (Chinese buyers only signed 200900 tons of American cotton in 2024/25 in the week of June 7-13).

Some institutions and cotton related enterprises feedback that whether to issue additional sliding tariff cotton import quotas in 2024 has not been clarified. Under the premise of "double harvest" of Brazilian cotton quality indicators and output in 2023/24, it is a little surprising that Chinese buyers inquire earlier than in previous years/sign contracts to purchase American cotton in the next year.

Why have Chinese cotton mills and traders started to gradually increase and arrange the 2024/25 US cotton contract signing since the middle of June? The opinions of the industry mainly focus on the following points:

First, as of 2024/25, American cotton is not only expected to have a high yield, but also its cotton grade and quality indicators will be significantly improved compared with the previous year. In addition, the basis difference of American cotton in far month shipping date is slightly lower, which is stronger than Brazilian cotton, Australian cotton and other cotton in terms of cost performance. From the quotation of some cotton enterprises, the shipping date of Brazil cotton, the main port of China, is currently from July to September 1-5/32 (28GPT) basis 8-9 cents/pound, Australian cotton M 1-5/32 (Qiangli 28/29GPT) basis 14-15 cents/pound in August September shipping, while American cotton SM in the same shipping period 1-5/32 (strong 28GPT) basis difference is about 10.5-11.5 cents/lb.

Second, since the middle of June, the Australian cotton region has experienced frequent rainfall, which has not only affected the picking progress, but also affected the lint grade and quality indicators to a certain extent, reducing the substitutability of delivery with American cotton. It is generally believed in the industry that the spinnability, consistency and other levels of Australian cotton new flowers are more likely to be lower than the old ones, and some export-oriented, high-grade and high-value added export traceability order proportion of large-scale cotton textile enterprises is high. It is relatively wise to lock in the high index American cotton resources in the new year in advance.

Third, in addition to tightening the import ban on cotton products in Xinjiang, the United States/European Union has also taken measures to delay customs clearance, increase investigation efforts, and stricter traceability requirements for imports of cotton textiles and clothing mixed with non American cotton. In order to reduce unnecessary boredom, some Chinese export enterprises have taken the initiative to expand the purchase of American cotton and the proportion of American cotton products used.

Fourth, although it has not been "settled" whether to issue additional sliding standard tariff quotas in 2024, most of the shipping dates for buyers to purchase American cotton in 2024/25 will be after December 2024. Even if the issuance of additional sliding standard tariff quotas fails, Chinese enterprises can still use 1% tariff quota for customs clearance (as usual, the 1% intratariff quota for 894000 tons in 2025 will be issued from the end of December 2024 to the middle of January 2025).