In the past month, the May ICE futures contract fell from about 70 cents to nearly 61 cents, and the December 2020 contract has trended in the same direction, currently around 62 cents. The Kotruk A index fell from 77 cents to 73 cents, cotton prices in China and India fell, and cotton prices in Pakistan stabilized.
According to the March monthly report of the United States Department of Agriculture, global production this year increased by 263,000 packages to 121.6 million packages, consumption decreased by 850,000 packages to 118.2 million packages, and opening stocks increased by 191,000 packages. to 80.2 million bales. Due to increased production and reduced consumption, global ending stocks increased by 1.3 million bales to 83.4 million bales. This year, global cotton supply exceeds demand, which continues to suppress prices.
The U.S. Department of Agriculture’s Outlook Forum in February estimated that cotton production in 2020/21 will decrease by approximately 3 million bales year-on-year to 118.5 million bales, and consumption is expected to increase slightly to 121 million bales. The global supply and demand gap is approximately 3 million bales, the ending inventory subsequently dropped to less than 80 million bales, slightly lower than the average level of the past three years (80.2-80.8 million bales), which has a positive impact on cotton prices. In the past three years, New York futures prices were between 73 and 79 cents.
However, due to the global outbreak of the new coronavirus pneumonia in recent weeks, the macroeconomic situation has changed significantly, so the forecasts of the USDA Outlook Forum are outdated. In early March, the Organization for Economic Cooperation and Development (OECD) predicted that global GDP would grow by 2.4% in 2020, down from 2.9% in 2019. This is completely contrary to the forecast basis of the USDA Outlook Forum. In 2019, global economic growth is the lowest since the financial crisis. If growth slows down further this year, the outlook for cotton demand will not be optimistic, and consumption forecasts may be lowered.
Including March, there are still 5 months left in this year, and the epidemic still has enough time to affect the consumption forecast for this year and the next year. This month, the USDA has already lowered its forecast for China’s consumption. As China’s textile factories resume production, there is little room to continue to lower China’s consumption in the later period. Still, delays in China’s textile production pose a threat to consumption. If the global epidemic cannot be controlled as soon as possible, the decline in consumption may cause the global supply and demand gap to disappear in 2020/21.
It is still early in the 2020/21 season. New cotton sowing in the northern hemisphere has just started. There will be many changes in the weather in the next few months until the new cotton harvest. Currently, the COVID-19 epidemic and macroeconomics dominate cotton demand, but Sino-US trade issues should not be ignored. The first phase of the China-US agreement has entered the implementation stage. If the actual situation does not meet the expected goals, trade friction may escalate. One reason for the slowdown in global economic growth in 2019 is the Sino-US trade war. If the situation becomes tense again this year, global economic growth will slow down further. </p
