Liu on Cotton: Downward Market Pressure Continues
Liu on Cotton: Downward Market Pressure Continues

Liu on Cotton: Downward Market Pressure Continues

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By Yangxuan Liu, Assistant Professor, Economics, University of Georgia 

The rapid spread of COVID-19 severely impacted the global cotton supply chain, leading to an unexpected reduction in cotton mill use across all the major cotton spinning countries. That includes China, India, Pakistan, Bangladesh, Turkey and Vietnam.

Cotton spinning in China fell by upwards of 90% during the height of the pandemic in early March. The spinning industry in China has begun to recover now. However, with the a probable decline in consumer apparel buying, we can only expect limited recovery in the spinning industry for the current marketing year.

The virus is spreading fast in Turkey, India and Pakistan, and recent travel restrictions in India, Pakistan and Vietnam will likely lead to trends similar to what China’s spinning industry has been through.

Closed Stores, Closed Wallets

The world’s clothing and textile retail sales have also plummeted. Many “non-essential” businesses, including apparel stores, are closed to slow down the spread of the virus.

In addition, with the rising rate of unemployment globally, dispensable income from consumers on apparel is also limited.

The forecast for current year’s world cotton consumption dropped 6.4% (7.6 million bales) in April 2020 compared to March 2020.

The current forecast of world cotton demand is at 111 million bales, while the world cotton supply is at a relatively high level of 122 million bales. The world ending stocks are also projected to increase at the third-highest level for the past decade, reaching 91 million bales.

With supply outpacing demand and rising global ending stocks, we have seen downward pressure on global cotton prices.

Where China Bought Cotton

U.S. cotton acreage is projected nearly unchanged at approximately 13.7 million acres in 2020 after a decline in 2019, according to the USDA Prospective Plantings Report. However, the survey was conducted in early March, and may not have captured effects of the full decline in cotton prices since then.

U.S. cotton exports are currently forecasted at 15 million bales, down 1.5 million bales from last month’s forecast. Since the Sino-U.S. trade dispute, the U.S. lost part of its cotton market share in China.

Brazil and Australia have benefited from the loss of market opportunity of U.S. cotton in China. In the global export market, Brazil is becoming the largest competitor for U.S. cotton. The U.S. ending stocks for the 2019-2020 crop year are expected to increase to the highest ending stocks for the past decade at 6.7 million bales.

The decline of global cotton demand, trade uncertainty, increased level of global competition and economic recession due to Covid-19 – all of these factors combined creates continued downward pressure for U.S. cotton prices.

July cotton futures for old crops closed at 53.58 cents per pound, and new crop December futures closed at 55.42 cents per pound on May 5th, 2020.


Source: Agfax

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