Interpretation of USDA's November supply and demand report on cotton

Recently, the U.S. Department of Agriculture released the global cotton supply and demand balance sheet for November. Adjustments to the 2024/25 season were minimal: beginning stocks and production were raised, while imports, consumption, and exports were lowered. For the 2025/26 season, production was significantly raised, with imports, exports, and consumption seeing modest increases-resulting in a rise in ending stocks. After the U.S. government shutdown, the USDA resumed publication following a nearly two-month hiatus. Despite the lack of key data disclosure, favorable production and quality have been reflected in the harvesting, processing, and inspection processes in the United States, China, and Brazil. Consequently, futures prices have mostly trended weakly with gradual declines, a movement ultimately corroborated by the USDA's released balance sheet. Adjustments for the 2025/26 season are concentrated on the cotton production of the United States, Brazil, and China. According to CCFGroup, China's cotton production in 2025/26 is expected to continue growing to 7.7 million tons, a year-on-year increase of 10%. Brazil's Conab estimates the 2024/25 production at 4.077 million tons, up 11% year-on-year. U.S. production is projected to recover to 3.07 million tons, a 2% year-on-year decrease. Supported by the production of these three countries, global ending stocks are expected to be revised upward by 610,000 tons.

The harvested area of U.S. cotton remained unchanged. The increase of production was mainly driven by the increase in yield-from 861 pounds/acre to 919 pounds /acre-while the average farm price continued to decline to 62cent/lb. The primary reason for the higher yield lies in favorable weather conditions during the cotton growth and harvesting periods. After May, the drought severity in major U.S. cotton-producing regions continued to fall, not rebounding until August, and remained slightly below the five-year average. Ample rainfall during the planting and early growth stages, coupled with relatively dry weather in the late boll opening and harvesting phases, collectively boosted cotton yield.

Given the further increase of U.S. and global cotton production, global cotton production shifting from a year-on-year decrease to an increase-will this trigger a downward trend in ICE cotton futures? We believes the probability of ICE cotton falling below 60cent/lb in the long term is low. Currently, the Dec contract is approaching delivery, with prices around 62cent/lb. Due to weak sales confidence, most short sellers have rolled over their positions to later months, while more long sellers have exited with losses. The March contract is also highly likely to break below 63cent/lb, or even pull back to the 59-61cent/lb range. Reasons for the further decline focus on the cotton supply-demand structure. On one hand, there is still room for upward revision of global cotton production in November, with expected increases in both production and quality of cotton in Xinjiang and the United States. On the other hand, the newly revised production volume has basically been converted into inventories in producing countries: U.S. cotton production is raised by 200,000 tons, with ending stocks up 150,000 tons; Brazilian cotton production is increased by 110,000 tons, with ending stocks up 60,000 tons; Chinese production is revised up by 220,000 tons, with ending stocks up 260,000 tons. In contrast, growth in imports and consumption is extremely limited, making it difficult to transfer inventories downstream. With little expectation of a cotton price rebound, major importing countries have mostly delayed their import plans to reduce inventory costs-a trend corroborated by the sales progress of USDA and Brazilian cotton.

However, a further decline may be relatively difficult. After the tariff war turmoil, ICE cotton has fallen back to around 60cent/lb to seek a bottom. Beyond a deterioration in fundamentals, a continued decline would require the support of unfavorable macroeconomic factors. Key factors supporting cotton prices include the following: 1) The implementation of Trump's tariff policy, which is beneficial to U.S. farmers. On one hand, the recovery of textile and apparel orders has led to a resumption in cotton purchases. On the other hand, tariff attachment agreements usually include procurement targets for U.S. goods-for example, Japan's imports of U.S. rice, Northern Europe's imports of U.S. wheat and grains, and certain tariff exemptions for Southeast Asian countries exporting products containing U.S. cotton. 2) Favorable weather conditions during the cotton growing period have not only boosted yield but also resulted in excellent cotton quality indicators. Overall cotton quality is solid, so the expected proportion of quality premiums is high, providing support for prices. 3) Expectations of Federal Reserve interest rate cuts in December and 2026. A weaker U.S. dollar is conducive to cotton exports and a rebound in commodity prices. 4) U.S. soybeans have rebounded consecutively to a near six-month high, yet ICE cotton futures continue to decline. The falling cotton-grain price ratio is affecting farmers' cotton planting intentions-attention should be paid to the cotton planting intention report for the first quarter of next year.

Finally, what is more concerning is the lingering uncertainty about whether cotton prices can stage a positive recovery in the new season. Due to the upward revision of production expectations, global cotton ending stocks for 2025/26 are shifting from a decrease to an increase. Even if macroeconomic factors turn favorable, fundamental pressures will be difficult to alleviate. Whether U.S. cotton can stop falling and recover in the new season, with its core trading range returning above 70cent/lb, remains contingent on further observations of new-crop planting intentions and weather conditions in major producing regions. Currently, Australian cotton sowing has been completed, and production is expected to reduce due to lower water storage in the Murray-Darling Basin reservoirs. Brazilian cotton's second-crop sowing typically begins after soybean planting, but soybean sowing has been affected by rainfall, which may delay cotton sowing. However, Conab's 2025/26 balance sheet has raised the expected cotton planting area while revising down yield, resulting in an overall downward trend in total production.