In the past month, international cotton prices rose in February, but fell in early March. The May ICE futures contract rose from 85 cents to 94 cents, and then fell back to 84 cents. The December contract rose from 80 cents to 88 cents and finally back to 81 cents. During the same period, the Kotruk A index rose from 90 cents to 99 cents, and finally fell back to 93 cents.
In the final analysis, the rise and fall of international cotton prices are changes in the supply and demand of US cotton. Putting aside speculative forces, the market should have a basic understanding of the current and future supply and demand in the United States.
First, while cotton prices have fallen recently, US cotton exports have slowed down. Since September last year, the average contract volume of US cotton every four weeks has been higher than the level a year ago. This situation changed in early February, when U.S. cotton contract volumes were lower than the same period last year for several consecutive weeks, while cotton prices also fell sharply during the same period. So far this year, U.S. cotton shipments have increased by nearly 20% year-on-year, but this is all due to China. U.S. cotton shipments to China have increased by more than 300% year-on-year. In addition to shipments to Mexico, which have increased by 23% year-on-year, U.S. cotton shipments to other top ten Shipments to export destinations have all fallen by 20% or more.
Second, the U.S. ending inventory increased from 4.9 million bales in 2018/19 to 7.3 million bales in 2019/20. As China’s demand for U.S. cotton remains strong, the U.S.’s increased ending stocks from last year were largely digested. Another reason is that the U.S. suffered extremely bad weather during the harvest last year. The current U.S. cotton production forecast is 3.4 million bales lower than last August. In this way, the U.S. ending inventory this year has been gradually reduced to 4.2 million bales, which is basically the same as in 2017/18. At that time, the average ICE futures was 79 cents, but higher than in the previous ten years (2009/10-2016/17) price levels most of the time.
Third, if the tightening of U.S. fundamentals is the reason for the increase in cotton prices this year, then the U.S. weather and export signings in 2021/22 will be very important for price trends. Currently, the drought in western Texas continues. The La Niña climate in the Pacific Ocean will bring warm and dry weather to the southern US production areas, which will intensify the drought in western Texas. In addition, La Niña will also lead to an increase in hurricanes in the Atlantic Ocean, both of which are not good for U.S. cotton production.
Finally, there are also uncertainties in U.S. cotton demand. Although the signing and shipment of U.S. cotton has been good so far, it is all due to China’s factors. The first phase of the China-U.S. agreement is still being implemented. China still needs to import a large amount of U.S. agricultural products, and imports will increase by US$7 billion in 2021. U.S. cotton growing conditions and strong demand from China indicate that U.S. ending stocks will continue to tighten next year. However, once the Sino-US agreement ends, it will have a fatal blow to US cotton exports and international cotton prices. As for the trend of cotton prices later in the year, although the prospects for cotton demand have been good, the United States is unlikely to continue to raise prices after selling out old cotton, as the price trend in previous years illustrates. </p
