At the U.S. cotton-producing area conference held in early January, U.S. economic and policy experts said that although the global COVID-19 epidemic is severe and countries are experiencing economic crises, cotton prices and cotton demand have recovered strongly. The ICE cotton futures March contract is at 82 cents, up more than 30 cents in the past ten months. Judging from the January forecast of the United States Department of Agriculture, total consumption in the United States this year will exceed production for the first time in three years, which is a good signal for price trends.
However, can the rising trend of cotton prices be maintained? This depends on a range of factors.
The National Cotton Council (NCC) of the United States stated that the speed of the subsidence of the new crown epidemic, the restoration of social order, and future government measures will have an important impact on the cotton market, and the current cotton price does not fully reflect this. The situation of global supply and demand and the high inventory situation outside China. Nonetheless, cotton prices are supported by factors including reduced U.S. cotton production and ending stocks, low supply chain inventories, increased Chinese purchases, fund speculation, falling U.S. dollars, rising grain prices and post-epidemic demand recovery. Overall, there are many factors other than supply and demand that have an impact on cotton prices. It is possible but not very clear whether the current cotton prices can continue throughout the year.
The USDA’s January supply and demand forecast predicts US cotton production to be 14.95 million bales, a decrease of 1 million bales from the previous month. The actual sown area in the US is 12 million acres, but due to hurricanes and drought, the harvested area is only 8.7 million. acres, the domestic cotton consumption and export volume of the United States are 2.4 million bales and 15.25 million bales respectively. China is the largest buyer of U.S. cotton, with a total of 4.4 million bales signed this year and 2.6 million bales shipped. NCC believes that based on China’s demand for U.S. cotton in the past decade and the first phase of the China-U.S. agreement, China’s imports of U.S. cotton in 2020 and 2021 are expected to be 4-6 million bales. Considering the current epidemic, the current demand for US cotton exports is very good.
According to the January forecast of the United States Department of Agriculture, the U.S. ending inventory fell to 4.6 million bales this year, the lowest in the past three years. The global ending inventory was 96.3 million bales, a slight decrease from the previous month because consumption exceeded production by 300 million bales. Thousands of packages. In 2019/20, the new crown epidemic caused global consumption to plummet to 102.6 million packages, but this year it is expected to recover to close to 116 million packages, but it is still 4 million packages lower than in 2018/19. NCC said that global cotton consumption is expected to recover quickly, but it has not yet returned to the level set before the epidemic. However, with a large amount of U.S. cotton exported, U.S. ending stocks have a further downward trend.
McDonald, a supply and demand forecast analyst at the U.S. Department of Agriculture, said that global demand for products including cotton was better than market expectations during the epidemic, especially in the second half of 2020. Last year, China’s imports of U.S. cotton Volume increased significantly, partly due to the first phase of the U.S.-China trade deal. During the epidemic, people have increased their savings and therefore increased their spending on goods, which has led to a sharp increase in prices. China’s active purchasing is a good signal, but future demand and price changes, namely trade and political factors between China and the United States, are still unpredictable. In addition, investors’ bullish market sentiment has also contributed to rising cotton prices, but this is not static. He personally expects cotton consumption to grow in 2021, but the epidemic and political factors can quickly affect trade and commodity prices, and nothing is certain.
Well-known analysts in the U.S. industry believe that cotton prices started a long-term recovery in the spring of 2020. During this period, drought caused new cotton production in the United States to significantly reduce to the lowest level in the past five years, exports remained strong, and Asian countries quickly recovered, pushing cotton prices to over 80 cents. According to the current situation, it is entirely appropriate for the cotton planting area in the United States to expand this year, but it may be difficult for cotton to compete with corn, soybeans, wheat and other crops for area. The prices of these crops have reached the highest in recent years. In 2021, the cotton area in the United States will not increase by more than 1 million acres, and the extreme drought in western Texas has not eased.
The U.S. Department of Agriculture predicts that the average farm price of U.S. upland cotton this year will be 68 cents per pound. Analysts believe that it may eventually reach 70 cents because high cotton prices are likely to remain high for another six months. Since 2020, U.S. cotton export demand has been very good and will continue to be so in the future. However, the epidemic is the biggest question, and its impact on the global economy in 2021 is difficult to estimate. It is expected that in 2021, the price of ICE futures front-month contract will be 70-80 cents/pound, but the weather will be the biggest variable. </p