Market Observation: Under The Financial Pressure Of USDA, American Cotton Expected Net Loss Sales

Although USDA's weekly crop growth report shows that as of the week of August 11, 2024, the excellent rate of American cotton was 46%, compared with 45% in the previous week (only 36% in the same period of the previous year), the excellent rate continued to rise, and the American cotton boll setting rate, boll full rate, cotton budding rate and other indicators were all ahead of the same period of the previous year, However, the USDA's August supply and demand report reduced the cotton production estimate for 2024/25 to 15.11 million bales, a month on month decrease of 11.12% compared with the July report's estimate of 1.89 million bales (the USDA report reduced the unit yield estimate of American cotton in 2024/25 to 840 pounds/acre, 4 pounds/acre less than the July estimate, and at the same time reduced the harvest area of American cotton to 8.63 million acres).

Some organizations and cotton related enterprises were surprised that the US cotton output in 2024/25 had been reduced significantly. It is generally recognized in the industry that USDA will reduce the global cotton output in 2024/25 to 117.64 million bales, because except for the United States, Pakistan and India will reduce their cotton output in 2024/25 by more than the previous forecast.

Several international cotton merchants and large cotton trade/cotton using enterprises believe that USDA In August, the report reduced the 2024/25 US cotton output by "overexerting" or now "overexerting". The US cotton output in this year may not be less than 16 million bales.

On the one hand, in the first half of August, in addition to the high temperature warning issued by the southeast cotton region, West Texas welcomes rainfall, drought has been alleviated, and soil moisture has improved (it is also necessary to pay attention to the landing of hurricanes and tropical storms in August and September and their impact on the main cotton producing areas). The overall growth of American cotton is smooth, and the excellent rate is expected to further rise to more than 50%, The harvestable area of American cotton will also exceed 9 million acres;

On the other hand, recently, the futures of agricultural products such as corn and soybeans in the United States have continued to fall sharply. The cotton/grain and cotton/soybeans price ratios have not weakened with the decline of ICE, but have expanded. Farmers' field management and investment in cotton have continued to increase, and they expect cotton to turn losses into profits.

USDA judges that American farmers have suffered the most serious financial pressure since 2000. The decline in the price of agricultural products and the rise in production costs have caused a double blow to farmers. Taking Illinois as an example, the expected net loss of farmers renting land in 2024 will be as high as US $129 per acre, equivalent to a loss of RMB 152.6 per acre. For corn, the return of farmers is expected to drop to - 185 dollars per acre (218.8 yuan per acre of land loss); Soybean income per acre - $74 (loss per acre 87.5 yuan).