Global Economy: American Cotton Output Is Lower Than The Previous Market Expectation

Recently, the contradiction between supply and demand of cotton is not prominent. On the supply side, the cost of new cotton is basically determined, which forms a certain support for the cotton price. At present, new cotton is in the stage of listing, so the selling pressure of new cotton is not great; On the demand side, after entering the slack season, there is a risk that demand will weaken. At present, the downstream cotton yarn inventory is at a medium level, and cotton procurement is still dominated by rigid demand. The subsequent demand performance and whether there is a small peak season before the Spring Festival are the key to the medium-term market.

The supply and demand report of the U.S. Department of Agriculture in October reduced the annual output of American cotton by 68000 tons to 3092000 tons in 2024/2025, an increase of 465000 tons compared with 2023/2024; The US Department of Agriculture has cut US cotton production for three consecutive months, which is significantly lower than previously expected. At present, the harvest progress of American cotton is relatively fast. As of October 27, the harvest rate of American cotton in 15 major cotton growing states was 52%, 5 percentage points faster than that in the same period of last year, and 6 percentage points higher than the average level in the same period of recent five years.

Although American cotton output has been adjusted to a low position, the final situation still needs to be tracked, and the market has some doubts about the continuous reduction of output by the USDA. American cotton production is not high, but demand performance is poor. As of the week of October 17, the cumulative contracted volume of American Cotton in 2024/2025 was 1.282 million tons, 9% lower than the same period last year, of which 119000 tons were contracted by China, 73% lower than the same period last year; Meimian has shipped 317000 tons in 2024/2025, 25% lower than the same period last year. China's cotton import volume in 2023/2024 is large, and the national reserve inventory has also been supplemented to some extent. In addition, the demand for cotton is general, and China's cotton import in the new year may decrease significantly. The October supply and demand report of the US Department of Agriculture shows that China will import 3.261 million tons of cotton in 2023/2024, and it is expected to import 1.96 million tons of cotton in 2024/2025, a year-on-year decrease of 1.301 million tons. Although the increase in global supply is not as large as previously expected, it is still in a state of oversupply. China's imports have decreased significantly, or the excess of trade flows has increased.

Brazil's cotton output in 2023/2024 will be 3.673 million tons, an increase of 500000 tons over the same period last year. Brazil's National Commodity Corporation made the first estimate of the output in 2024/2025, which will be 3.665 million tons, a decrease of 8000 tons over the previous year. Brazil continues to yield, making Brazil the world's largest cotton exporter, surpassing the United States.

In September, the export volume of Brazilian cotton was 170000 tons, up 51.7% month on month and down 9.1% year on year. In terms of export destinations, China (47000 tons) ranks first, and Vietnam (33000 tons) ranks second. From July to September 2024, Brazil's total exports will be 449000 tons, an increase of 23.4% year on year.

At present, Xinjiang cotton picking is coming to an end, and the cost of new cotton is basically determined. As of October 21, the cotton picking progress in Xinjiang was 70%, an increase of 19 percentage points over the previous week. Among them, the cotton picking progress in northern Xinjiang is 91%. As of October 28, the cumulative processing volume of lint in Xinjiang was 1.6292 million tons, a year-on-year increase of 45.9%. Among them, the processing volume of lint in the autonomous region was 1.0862 million tons, with a year-on-year increase of 58.73%; The lint processing volume of the Corps was 543000 tons, a year-on-year increase of 25.59%. At present, the purchase price of seed cotton is 6.2~6.3 yuan/kg, and the estimated cost of new cotton is 14500~15000 yuan/ton. The downstream textile enterprises purchase generally, and the traders purchase relatively actively; The textile enterprises' startup performance is fair, and the cotton yarn inventory has increased, which is generally at a medium level. From the perspective of product performance, the transaction of low count varieties below 32 counts is still relatively smooth, the regular combed varieties just need to be delivered, and the demand for combed and high count yarns is weak. The current peak season is basically over, and the new orders of the weaving factory continue to decrease, and the operating rate declines. In the case of poor demand and no increase in raw material prices, the weaving factory mainly buys when it needs, and the purchase volume declines. The price trend of Zheng cotton in the short term is volatile, and the cost of new cotton has a supporting effect on the price. Due to weak demand, the upper space is limited.

The macro aspect also deserves attention. At the beginning of November, the results of the US election and the implementation of domestic fiscal policies will be further clear. The 12th Meeting of the Standing Committee of the 14th National People's Congress will be held in Beijing from November 4 to 8. Judging from the current trend of the domestic commodity market, some sectors have begun to strengthen, cotton performance is relatively restrained, and continue to pay attention to the performance of subsequent macro policies.

At present, the domestic cotton fundamentals are still weak, the supply is relatively sufficient, and the demand performance is general. However, as the cost of new cotton is basically determined, there is no too much selling pressure on short-term supply, and the support below is strong. The subsequent macro policies and demand performance are the key to the medium-term market.