Big events of international cotton market in 2020

1. Changes in international cotton prices in 2020

In 2020, international cotton prices showed a V-shaped trend overall. Before Apr, international cotton prices stepped downward significantly dragged down by the outbreak of coronavirus pandemic worldwide, later, with release of the stimulus and rescue policies and plant resumption, cotton prices witnessed stable rise and hit year high. China has taken the lead in taking effective measures to control the pandemic and consumption has been the first to recover. Plus the higher production costs of cotton this year, CCFGroup Index Cotton 3128 prices rose by 12.6% year on year (by Dec 25). Pakistani spot cotton index also rose by 11.8% affected by sharp reduction of cotton production and buoyant local demand. US upland cotton index climbed up by 11.2% stimulated by lower cotton production and favorable exports. Indian cotton prices saw limited increment affected by high cotton production and large inventory pressure.

2. Big events of international cotton market in 2020
1. Indian cotton
(1) MSP hits new high and cotton supply is abundant

In 2020, India’s MSP for cotton rose by about 5.0% compared with the previous season, hitting new high in recent years, making Indian cotton planting area in 2020/21 more than 12.95 million hectares, which is also a new high in recent years.
According to Dec report of Cotton Association of India, cotton production in 2020/21 may reach 6.05 million tons. As of Nov 30, new cotton arrivals totaled 1.56 million tons, an increase of 163.1% year-on-year, and cotton inventory is supposed to be 1.557 million tons. Cotton production and inventory are relatively high, and the cotton supply is abundant.

(2) Cotton procurement and sales of Cotton Corporation of India

In 2020, CCI has procured 2.26 million tons of 2019/20 cotton. From Mar 2020, CCI started its sales for 2018/19 and 2019/20 cotton. In June, the floor prices of cotton at auction was significantly lowered and the discounts were increased. CCI's cotton price edge was seen obviously. From Aug, sales of cotton at auction began to increase. As of mid-Dec, CCI has sold about 1.4 million tons of 2019/20 cotton.

In addition, the arrivals of 2020/21 cotton are obviously faster compared with the corresponding period of previous years, and the cotton procurement also speeds up. By Dec 22, CCI has procured 1.07 million tons of 2020/21 cotton. Besides, by mid-Dec, CCI sold 100kt of 2020/21 cotton.

Currently, the total inventory of CCI cotton is estimated at 1.50 million tons, including 55% of new cotton.

2. US cotton
(1) Production may reduce and quality may be inferior
By Dec 24, inspection volumes of US upland cotton totaled 2.72 million tons, down 26.1% year on year, about 81.26% of the forecast production, and that of upland cotton and Pima totaled 2.797 million tons, about 80.6% of the forecast production.　The proportion of the upland cotton tenderable against ICE futures amounted to 76.9% for the marketing year, down 3.1% year on year.

According to the current inspection volume and tenderable ratio, the production and quality may decline to a certain extent compared with the previous season.

(2) Exports may be higher than USDA expectations
By Dec 17, export sales of 2020/21 upland cotton totaled 2.519 million tons, a fall of 1.1% year on year, and export shipments totaled 1.131 million tons, an increase of 34.8% year on year.

Export sales of 2020/21 upland cotton and Pima amounted to 2.641 million tons, about 80.9% of the forecast production, and export shipments totaled 1.203 million tons, about 45.5% of the forecast sales.

The decrement of export sales continues to narrow, basically approaching the level of the same period of last year, and export shipments have been constantly higher than last year. Affected by the strong demand from China, Vietnam and Pakistan, US cotton export volumes may be higher than USDA's estimation of 3.266 million tons.

3. Brazilian cotton
(1) Production hits new high

Affected by the continuous increase in planting areas, Brazilian cotton production in 2019/20 hit a record high of 3.002 million tons in recent years, making it the fourth largest cotton producer in the world.

(2) Exports remain strong

With the substantial increase of production and the changes in Sino-US trade relations, the cost-effective Brazilian cotton is favored by major cotton importing countries. Since Oct last year, the monthly export volumes of Brazilian cotton have almost continued to hit a new high in the same period of the previous years. In Nov 2020, the export volume reached a record high of 330,000 tons. Brazil has become the world's second largest cotton exporter.

4. Pakistani cotton
(1) Planting areas and production are at a record low
Pakistani cotton planting areas have been constantly decreasing over the past few years, affected by the lack of cotton guided-price, inadequate quality seeds, inferior quality of fertilizers and pesticides and better profits of sugar. In 2020/21 season, cotton planting areas are expected to reduce to 2.218 million hectares, while it was 2.963 million hectares in 2014/15 season.

In addition, the desert locust also has a greater impact on Pakistani cotton this year. According to Pakistan Cotton Ginners' Association (PCGA), as of Dec 15, new cotton arrivals in 2020/21 have totaled 784kt, a fall of 35.7% year-on-year.

(2) Soaring demand for imported cotton

Affected by the sharp decline in cotton production, but the strong downstream demand, Pakistan's cotton imports continued to grow since the second half of this year.

5. Australian cotton

After Oct 2020, China began to restrict the customs clearance of Australian cotton. As the proportion of Australian cotton in China’s cotton import structure has dropped to a low level, and the imports of other foreign cotton can replace it, so the influence on China's cotton imports is limited. But in 2019/20 season, Australian cotton export value to China took a share of 86.3% in its total cotton export value. In short, the large market shares of China are supposed to be hard to be consumed by other countries, which may impact its cotton exports.

In summary, in early 2020, Pakistan and India are attacked by desert locust, and the Pakistani cotton growing is affected. Later, the downstream demand reduced sharply due to the outbreak of the pandemic worldwide. Nevertheless, China began to enlarge the US cotton imports from the second quarter, spurring up the ICE cotton futures. From the third quarter, CCI lowered the floor price of cotton sales and transactions increased gradually. In addition, Brazilian cotton exports and Pakistani cotton imports began to rise during the period. After the National Day holiday (Oct 1-8), China began to limit the customs clearance of Australian cotton. US also decided to detain shipments containing cotton and cotton products originating from the Xinjiang Production and Construction Corps (XPCC) from Dec. Affected by various policies, weather, natural disasters, pandemic and other factors, global cotton production is supposed to decline somewhat in 2020/21 season and global cotton consumption is likely to reduce largely. Cotton prices are more volatile.