Market Insight: Looking At The Global Cotton Market In The Future Is Not Optimistic

From the perspective of global trade flow, China, the United States and Brazil have the greatest impact on international cotton prices. The output of these three countries ranks among the top four in the world (although India has a large output, most of its output is for domestic sales and does not circulate much in the international market). Secondly, China is the largest import consumption market, and the marginal change of import volume is large (Bangladesh, Vietnam, Pakistan, Turkey import a lot, but the import consumption is relatively stable each year). The United States and Brazil jointly compete in the Chinese market, and the cotton prices of the three countries affect each other.

In 2024/25, China, the United States and Brazil, the three major producing countries, all increased production significantly. In addition, it is expected that China's trade relations will deteriorate, and China's import demand may decrease significantly. However, the demands of the United States and Brazil for foreign exports will increase, which also leads to the pessimistic supply and demand relationship between the two countries. Therefore, it is expected that the future international cotton price will be a weak and volatile pattern. If there are major macro factors, If the United States significantly increases taxes on China's clothing imports, the price of American cotton will also be driven by a sharp decline.

It is expected that the price of American cotton will fluctuate around the range of 71 cents (the cost of the United States), with the lower support at 65 cents (the cost of Brazil) and the upper pressure at 77 cents (the comprehensive cost of China, America and Pakistan).

Domestic market outlook: from the supply side, it is estimated that the total cotton output in 2024/25 will be about 6.355 million tons, 485000 tons more than the 5.87 million tons of the previous year; It is estimated that the import volume will be 1.96 million tons, 1.3 million tons less than the same period last year. After domestic supply becomes loose, import needs to be greatly reduced. However, as the major cotton producing and exporting countries, the United States and Brazil, have increased production by a large margin, and the market competition is more intense, the international cotton price may be downward, which is not conducive to the domestic cotton price. From the consumer side, the domestic consumer market has been OK since this year, but the export market is not good, and the overall consumption is weak.

According to the current macro environment, it is difficult for consumption to improve significantly next year unless strong domestic stimulus measures are introduced. And if the United States imposes tariffs on China's clothing exports significantly, the consumer side will further deteriorate.

Before the first quarter of 2025, domestic supply is loose and demand may hardly improve, and the United States has the expectation of levying tariffs. It is expected that Zheng Mian's price will be weak, so it is recommended to short at high prices. After the second quarter, the domestic and foreign countries began to preliminarily determine the output in 2025/26. If the cotton price is at a low level at this time, and there is a good expectation of production reduction, the price may rebound at an intermediate level. In addition, we need to focus on changes in macro factors, whether there will be major domestic economic stimulus policies, and changes in the U.S. foreign trade policy after Trump officially took office. Both of them may have a great impact on China's consumer end.

Review of cotton market

From January to March 2024: From January to March, the export progress of American cotton will accelerate significantly, which will drive the price of American cotton to rise. At home, due to the production reduction in 2023/24 and driven by the external market, the price of Zheng cotton rose in shock.

April August 2024: USDA estimates that the US output in 2024/25 will increase significantly year on year, and the US cotton price will begin to decline. On the domestic side, due to the decline of the external price, import profits have significantly expanded, and the import volume has increased significantly year on year. In addition to the continued weakness of downstream demand, textile enterprises have accumulated raw materials and finished products, and the price of Zheng Cotton has continued to decline.

September October 2024: China has entered the peak season of "golden nine and silver ten". The downstream orders of textile enterprises have generally improved, the operating rate of textile enterprises has increased month on month, and the speed of cotton destocking has also accelerated. On the other hand, domestic economic stimulus policies were successively introduced at the end of September, and the stock market and commodity prices rose sharply, which also promoted the rise of cotton prices.

November 2024: As the market's bullish mood gradually subsides, the price of Zheng Mian will fall again.

International market outlook

U.S.A:

The overall weather conditions are good. In the first half of this year, the overall weather conditions in the United States cotton growing areas were significantly better than last year, and the excellent rate of American cotton continued to be higher than the same period last year. The planting area increased significantly. According to the November supply and demand report of the United States Department of Agriculture (USDA), the cotton planting area of the United States in 2024/25 was 3.49 million hectares, 0.88 million hectares more than that of the previous year, and the output was estimated to increase by 18%.

As of November 15, the cumulative processing volume of American cotton reached 1.554 million tons, an increase of 256000 tons on a year-on-year basis, and the processing progress was about 33.09%, an increase of 5.33 percentage points on a year-on-year basis.

According to the current USDA's latest estimate (November), the US cotton output in 2024/25 will be 3.09 million tons, an increase of 470000 tons year on year.

The progress of US export contracting is significantly behind. As of November 14, 2024/25, the total volume of US cotton export contracting reached 1.47 million tons, a decrease of 287000 tons compared with the same period of the previous year. The cumulative signing progress was 59.77%, 8.62 percentage points behind the previous year, the lowest level since 2017/18.

According to the current export contracting progress, the future export target of American cotton may have a large downward space.

The export shipment volume of the United States is also at the lowest level in recent years. According to the data released by the United States Department of Agriculture (USDA), the annual total export shipment volume of American cotton as of November 14 was 477000 tons, a year-on-year decrease of 63000 tons, and the signing progress was 30.89%. The supply and demand have changed from shortage to surplus, and there is a possibility of further deterioration.

According to the November supply and demand report of the United States Department of Agriculture (USDA), the U.S. cotton supply in 2024/25 will change from a shortage of 300000 tons in the previous year to an excess of 250000 tons; The inventory consumption ratio is expected to rise from 21.23% to 32.93%.

On the other hand, because the current progress of export contracting is far behind the same period of previous years, the future export volume is likely to decline, and the supply and demand balance may further deteriorate.

Brazil:

The planting area continued to increase, and the output increased by 15% to a new high. According to the latest USDA estimate (November), the cotton planting area in Brazil in 2024/25 was 1.94 million hectares, an increase of 0.28 million hectares compared with the previous year; The cotton output was 3.66 million tons, with a year-on-year increase of 490000 tons.

Brazil's export supply remains at a historical high. According to the latest USDA estimate (November), Brazil's export supply will remain at a historical high of 2.68 million tons in 2024/25, close to 2.7 million tons in the previous year.

Brazil's supply has changed from a small shortage to a small surplus. According to the current USDA's latest estimate (November), Brazil will have a supply surplus of 260000 tons in 2024/25 and a shortage of 200000 tons in the previous year; Inventory consumption ratio was 27.71%, an increase of 7.83 percentage points over the previous year.

India:

The output is expected to decline slightly. According to the latest USDA estimate (November), the cotton planting area in India in 2024/25 will be 11.8 million hectares, 0.9 million hectares less than that of the previous year; The cotton output was 5.23 million tons, a year-on-year decrease of 480000 tons, or 8.33%.

India's consumption is expected to increase slightly year on year, and the net exporter will become a net importer. According to the US Department of Agriculture (USDA) consumption data in November, India's cotton consumption in 2024/25 will be 5.55 million tons, an increase of 150000 tons year on year.

According to the US Department of Agriculture (USDA) import and export data in November, India's cotton import volume in 2024/25 is expected to be 500000 tons, an increase of 290000 tons year on year; The export volume was 280000 tons, a year-on-year decrease of 200000 tons.

India has a small supply shortage. According to the November supply and demand report of the United States Department of Agriculture (USDA), India's cotton ending inventory in 2024/25 will be reduced from 2.5 million tons to 2.03 million tons, and the inventory consumption ratio is expected to decline from 42.52% to 34.7%.

Global:

Both supply and consumption have decreased, with a slight surplus. According to the monthly report of the US Department of Agriculture (USDA) on global cotton supply and demand forecast in November, the global output is expected to increase 690000 tons to 25.3 million tons in 2024/25 year on year; Consumption increased by 300000 tons to 25.09 million tons year on year; The supply has changed from a small shortage of 170000 tons to a small surplus of 210000 tons; The ending inventory increased by 250000 tons to 16.49 million tons year on year.

The global inventory has not changed much. According to the monthly report of the US Department of Agriculture (USDA) on global cotton supply and demand forecast in November, it is estimated that the global ending inventory in 2024/25 will increase by 250000 tons to 16.49 million tons year on year; Inventory consumption ratio increased slightly by 1.04 percentage points to 48.13%.

Summary of the global market: the weak and volatile pattern of American cotton, focusing on the driving force of macro factors. From the perspective of global trade flows, China, the United States and Brazil have the greatest impact on international cotton prices. The output of the three countries ranks the top four in the world (although India has a large output, most of its output is for domestic sales, and it does not circulate much in the international market).

Secondly, China is the largest import consumption market, and the marginal change of import volume is large (Bangladesh, Vietnam, Pakistan, Turkey import a lot, but the import consumption is relatively stable each year). The United States and Brazil jointly compete in the Chinese market, and the cotton prices of the three countries affect each other. In 2024/25, China, the United States and Brazil, the three major producing countries, all increased production significantly. In addition, it is expected that China's trade relations will deteriorate, and China's import demand may decrease significantly. However, the demands of the United States and Brazil for foreign exports will increase, which also leads to the pessimistic supply and demand relationship between the two countries. Therefore, it is expected that the future international cotton price will be a weak and volatile pattern. If there are major macro factors, For example, the United States has significantly increased taxes on China's clothing imports, and American cotton prices are still driven down. It is expected that the price of American cotton will fluctuate around the range of 71 cents (the cost of the United States), with the lower support at 65 cents (the cost of Brazil) and the upper pressure at 77 cents (the comprehensive cost of China, America and Pakistan).