Source: SDIC Anxin Futures Research Institute
After the release of the USDA's August supply and demand report, it significantly reduced the production of U.S. cotton in 22/23, resulting in a significant tight supply of U.S. cotton in the new year, U.S. cotton 22/ 23 annual output down 638,000 tons to 2.737 million tons, exports down 435,000 tons to 2.613 million tons, from the August harvest area to calculate, the U.S. cotton abandonment rate reached a new high, the end of the period inventory fell to a multi-year low, which is the main logic of the recent U.S. cotton continuous surge; but the market for the U.S. cotton adjustment in August There are also more doubts, global cotton consumption is not as optimistic as the U.S. cotton estimate, China 21 / 22 years of consumption data is still 8.056 million tons, significantly more than the domestic agency estimates, and the actual order demand of enterprises deviation is larger, the global consumption of the new year is not optimistic, because the global economic growth expectations continue to decline and geopolitical conflicts, etc.; the market is also questioning the US Department of Agriculture for the U.S. cotton new year of the downward adjustment is too pessimistic, do not rule out the possibility of subsequent production reverse adjustment, the recent U.S. cotton production area of Texas, is also the previous sustained severe drought area, or ushered in a higher than normal level of rainfall, pay attention to the follow-up situation; although the U.S. cotton production has been significantly reduced, but the long-term global cotton prices are still in a downward cycle.
U.S. cotton production has been greatly reduced and the recent U.S. cotton has risen continuously, but the domestic Zheng cotton has only followed slightly, the spot price increase is lower than that of futures, the root cause of the differentiation of domestic cotton prices, the fundamentals of domestic cotton are still biased, the domestic cotton supply is excessive before the new cotton is listed, due to the Xinjiang cotton ban, the supply can not be effectively exported, resulting in continuous differentiation of internal and external cotton prices.
First, the us cotton has a record high abandonment rate, and the yield reduction is controversial
In its August supply and demand report, the U.S. Department of Agriculture lowered the harvested area of U.S. cotton from 3.46 million hectares last month to 2.89 million hectares, a very large downward cut, and the abandonment rate of U.S. cotton in the new year reached 41.56%, reaching a record high; from the adjusted balance of supply and demand of U.S. cotton, the supply and demand of U.S. cotton in the new year was very tight, and the difference between production and exports and ending stocks were at historical lows; after entering August, U.S. cotton entered the 22/23 year. The total sales volume of U.S. cotton upland cotton and pima cotton in 2022/23 was 1.6598 million tons, accounting for 55% of the total annual forecast export volume (3.05 million tons), and the total signed volume was in the highest position in recent years; U.S. cotton December on-call data leaf is also at a historical high, from a variety of factors, the U.S. cotton in the new year is expected to continue to be strong, but the most fundamental problem is still whether the U.S. cotton production is too adjusted, and the probability of global consumption is weak, which is also the fundamental reason why the market is cautious about the rise of U.S. cotton.
Second, the main cotton-producing area of the United States, Texas, may usher in higher than normal rainfall recently
Since the planting of cotton in Texas, the main cotton-producing area of the United States, has been in a state of severe drought, the degree of drought is second only to the situation in 2011, but the abandonment rate given by the US farmers in August 2022 is significantly higher than that in 2011, the output of US cotton in 11/12 was 3.39 million tons, and the annual output of 22/23 given by the US farmers in August this year was 2.73 million tons; Judging from the weather forecast, the rainfall in Texas in the next two weeks is higher than normal, the drought situation in Texas has eased, and the probability of adjusting the direction of the new annual production of U.S. cotton may be larger, and the probability of the strong market caused by the U.S. cotton production cut is a short-term market.
Third, cotton consumption is weak, and the consumption expectations of the new year are biased
The U.S. Department of Agriculture reported in August that China's consumption in 21/22 was 8.05 million tons, and the cotton information network gave China's consumption of 7.37 million tons, and from the perspective of cotton consumption estimates in recent months, China's consumption in 21/22 years or less, or around 7 million tons, the country was trapped by the impact of the epidemic policy, and export orders faced the impact of the Xinjiang cotton ban, resulting in weak domestic and external demand. Due to the ban on cotton in Xinjiang, the internal and external cotton markets are disconnected, and the domestic excess cotton supply cannot be digested through exports, resulting in domestic cotton prices being significantly lower than US cotton; Recently, China's signing of U.S. cotton contracts has continued to be invisible, and Sino-US relations will not see a turnaround in the short term, and it is possible that China will reduce the purchase of U.S. cotton in the new year and increase cotton purchases from Brazil and other countries. Vietnam and Bangladesh, where export orders have been performing well in the previous period, also experienced a shortage of orders, and orders decreased month-on-month. Considering that the US dollar is still in the interest rate hike cycle, and the global economic outlook is not optimistic, as well as geopolitical conflicts, there may still be a large downward adjustment in global cotton consumption in the new year.
In summary, the adjustment of U.S. cotton production by U.S. farmers seems reasonable, but in fact there are many controversies, especially in textile exporting countries facing high-priced cotton, or further restricting the demand for cotton, resulting in poor price increases, and continuing to pay attention to U.S. cotton weather and global demand in the later period. After touching the vicinity of 120 cents, the US cotton continues to rise or is limited, and if there is a sharp adjustment, the domestic Zhengmian is likely to return to the pattern of weak shocks in the early stage.
This article originated from the financial world