Market Observation: Global Cotton Production And Ending Inventory Increase, Market Bearish Increase

According to the January cotton supply and demand report of the US Department of Agriculture, the global cotton output and ending inventory in 2024/25 continued to rise compared with the previous month. The increase in global cotton production is mainly based on the expected increase in cotton production in China, the United States and Australia. In particular, China, as the world's largest cotton producer, has a significant impact on global production. As the global cotton consumption increased by only 22000 tons, far less than the increase in output, the global ending inventory continued to rise. Specifically, the global cotton output in 2024/25 will be increased to 26007000 tons, an increase of 449000 tons over the previous month; The global cotton ending inventory rose to 16.963 million tons, an increase of 412000 tons over the previous month.

USDA raised the global cotton output in January, focusing on the increase of China's cotton output, which may be closely related to the larger than expected increase of China's actual cotton processing volume in the new season. Before cotton harvesting every year, the operator can assess the yield through cotton growth, and enter the lint processing stage, and can more accurately predict the yield change through the actual processing progress. At the beginning of this year's harvest, the market generally estimated that Xinjiang's cotton output might be 6.1 million tons. However, as of January 10, 2025, Xinjiang, the main cotton producing area in China, had processed 6.2 million tons of lint in 2024/25, which was far more than the annual output of the previous year, an increase of 1 million tons or 19% over the same period of 2024, making the industry's expectations for cotton production increase this year continue to rise, The probability of Xinjiang's cotton output reaching 6.5 million tons will increase significantly. Therefore, in the current supply and demand report, USDA increased China's cotton output by 392000 tons to 6532000 tons compared with the previous month.

The USDA's supply and demand report in January continued to increase US cotton production and ending inventory, which is the third consecutive month for USDA to increase production and ending inventory. The main reason for the yield increase is that the increase of cotton yield per unit area in the southeast and delta regions of the United States exceeded the decrease of cotton yield per unit area in the west, which increased the average cotton yield in the United States. According to USDA, the unit yield of American cotton is 836 pounds/acre, an increase of 44 pounds/acre on a month on month basis. It is estimated that the total yield of American cotton will rise by 34000 tons to 313800 tons. In addition, due to the poor export expectation of American cotton, the export volume was reduced to 2.395 million tons, down 65000 tons month on month. American cotton consumption basically depends on exports, and the decline in export volume also reflects the poor demand of the global market. The direct result of the increase in American cotton production and the decrease in demand is that the ending inventory has accumulated to 1.045 million tons, the highest value in nearly four years.

The USDA supply and demand report has raised the global cotton output and ending inventory for many times in a row, and raised the US cotton output and inventory. The fundamental pressure of oversupply has further emerged, and the bearish atmosphere of market participants towards the cotton market has increased accordingly. In particular, American cotton exports have been slow to improve, making the industry worried about the further contraction of global cotton consumption. On the day when the report was released, the settlement price of the main contract of American cotton futures in the external market fell to the lowest level of 67.01 cents/pound in the past six months.

In addition, USDA raised China's cotton output and ending inventory more than the market expected, making market participants more worried about China's cotton consumption prospects, and spot purchase and sales stagnated. According to the research of Zhuochuang Information, the short-term market focuses on the consumption momentum and macro market trend of the cotton textile market. As the Spring Festival approaches, the placing of orders in the end market will come to an end. The orders of middle and downstream enterprises will decrease, and the enthusiasm for stocking raw materials will decline. In particular, some enterprises have begun to take vacations due to poor profitability, resulting in a decline in cotton consumption momentum; Since the United States has repeatedly said that it will boost high tariffs on Chinese goods, cotton textile exports may face serious challenges. The uncertainty of the Sino US trade situation will also cause some textile enterprises to fail to arrange production plans as scheduled, thus affecting the smooth operation of the industrial chain.

From the perspective of the linkage of domestic and foreign cotton prices, the fundamentals of domestic and foreign cotton markets are negative in the short term, and there is a possibility of linkage decline in cotton prices. The main transmission logic is that if the price of foreign cotton continues to decline, the price performance advantage of domestic cotton will decline accordingly, and some downstream textile enterprises will reduce the proportion of domestic cotton or the proportion of stock raw materials in the process of purchasing raw materials, thus forcing the holder to reduce the price and ship; At the same time, the decline of external futures will also encourage some domestic cotton enterprises to pre purchase foreign cotton at low prices, or lead to a large volume of cotton imports in the next two months, increasing the effective domestic supply; Moreover, if the domestic cotton price continues to decline, it will also restrain the downstream from buying high-grade American cotton, Australian cotton, etc., thus hindering the consumption of foreign cotton. Therefore, it is expected that the cotton market price will continue to be weak on the eve of new cotton planting in April.