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USDA June report: lower 2021/22 global cotton production and ending stocks

2022-07-01 09:01:17 CCFGroup

According to USDA’s Jun supply and demand report, 2021/22 global cotton production and ending stocks are forecast lower. Before the arrivals of 2022/23 cotton, the global cotton supply is supposed to keep tight. Meanwhile, USDA also forecasts a lower consumption for 2021/22 and 2022/23 seasons, showing that the high cotton prices restrain the consumption apparently, and later, the consumption is likely to be lowered further. The drought condition in Texas persists, but crop growing development is good, and the expectations of a higher new cotton production maintain.

 

1. USDA Jun supply and demand report

For 2021/22 season, USDA forecasts a lower Indian cotton production, down by 220kt from May, and it also lowers Brazilian cotton production by 110kt. Meanwhile, consumption is lowered by 270kt. Overall, the cotton supply remains tight. 2021/22 global ending stocks are lowered by 150kt from previous month. But recently, new cotton is arrived on the Brazilian cotton market, and local cotton prices dip quickly. In Australia, affected by the rainfall, the harvests are delayed in South Wales.

 

For 2022/23 season, USDA forecasts a slightly lower cotton consumption, to 26.46 million tons, down 30kt from 2021/22 season. Production is slightly higher. Though Texas need more moisture despite of recent rainfall, USDA reports a good development of U.S. cotton planting this year, and it has not anticipated a production reduction. For India, the cotton planting areas in Punjab are expected to reduce by about 20% from last year, and Indian cotton production may adjust lower later. However, Indian government is active to solve the pest infestation in new season, and the Meteorological Department forecasts ample rainfall will bring during the monsoon, which is beneficial for the cotton crop. Currently, the cotton crop planting progress is favorable in Pakistan. Therefore, we estimate that 2022/23 cotton production is expected to increase.

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2. The fundamentals of ICE Jul contract remain firm

The total export sales of 2021/22 U.S. upland cotton and Pima reach 3.626 million tons, about 113% of the forecast export volumes, and export shipments total 2.459 million tons, about 68% of the total export sales. Export shipments are relatively slow. Though the unfixed call sales of ICE Jul contract have rolled towards Dec contract, by Jun 3, the unfixed call sales of Jul contract are still highly at 27,948 lots, equivalent to 630,000 tons.

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3. Cotton consumption remains dull

China: though the epidemic control eases gradually in Shanghai, Chinese yarn sales see no obvious improvement since Jun, as it is the slack season and spinners cut the operating rate. Currently, the operating rate of spinning mills is only around 45%.

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Southeast Asia: viewed from the theoretical export profits of spinning mills in Vietnam and Pakistan, the profits have been at a multi-year low level currently. The high cotton prices continue to dampen spinners’ profits. Meanwhile, yarn inventory keeps accumulating, so the demand for cotton weakens further. In India, the spot profit also goes weaker apparently. Besides, spinners start several rounds of strikes to cut production, to resist the high cotton prices, and fabric mills are also active to import cotton yarn from other countries. Spinners also change to produce blended yarn to reduce cotton costs. Therefore, the cotton demand is obviously restrained by high cotton prices in Southeast Asia.

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