US Cotton Prices Hit Three-Year High. Will Global Rates Follow Upward Trend?
U.S. spot cotton prices averaged 88.35 cents per pound for the week ended Aug. 12, according to the U.S. Department of Agriculture (USDA). This is the highest weekly average since June 14, 2018, when the average was 90.27 cents.
The weekly average was up from 86.31 cents the prior week and from 57.62 cents a year earlier. Most benchmark cotton prices increased last month, with the value for the December NY/ICE futures contract holding between 88 cents and 90 cents per pound, according to the monthly update from Cotton Incorporated.
In early August, futures resumed their climb and have reached levels over 93 cents per pound, Cotton Inc. noted. Also in the past month, the A Index, an average of global cotton prices, breached $1.00 per pound for the first time since June 2018, just before the first round of U.S.-China tariff increases went into effect.
The Chinese Cotton Index also ticked up last month, resulting in prices increasing to $1.24 per pound this month from $1.16 in early July.
The International Cotton Advisory Committee’s (ICAC) current price forecast of the season-average A index for 2021-22 ranges from 73 cents to $1.25, with a midpoint at 95.43 cents per pound.
The latest USDA report featured a slight decrease to the world cotton production forecast and a minor increase to the world mill-use projection. Along with historical revisions that lowered beginning stocks for the new 2021-22 crop year, the net effect was to lower the USDA estimate for 2021-22 ending stocks by 511,000 bales to 87.2 million bales.
At the same time, the USDA global trade forecast increased 335,000 bales to 46.3 million bales. Cotton Inc. said if this is realized, it would rank as the third-highest volume on record, only behind 2012-13 and 2020-21.
The Cotton Inc. report noted that the final set of weekly U.S. export sales and shipment data for the 2020-21 crop year just released by USDA was highlighted by the strength of U.S. export shipments over the past 12 months, even in the face of the global Covid-19 pandemic. Although shipments trailed off near the end of the crop year, total U.S. exports in 2020-21 rank as the second highest on record, only behind the 17.7 million bales shipped in 2005-06.
China was a driver of that strength, with U.S. shipments to China in 20200-21 hitting 5.2 million bales, representing 32 percent of total U.S. exports. This is twice the volume the U.S. sent to China in 2019-20 and more than three times the amount the U.S. sent to China in 2018-19, Cotton Inc. said.
“In recent weeks, buying activity from China has slowed,” the report said. “Reports suggest that Chinese mills have been picking up consignment stocks already available in Chinese ports rather than making purchases that require further delivery. In addition, the Chinese government has been making sales from its reserve stocks. Demand at these auctions has been strong, with the volume offered for sale routinely selling out, despite much of that cotton being offered for sale being eight to 10 years old.”
However, Cotton Inc. said “questions swirl around the outlook for U.S.-China trade relations and export volumes. It is unknown what may follow the Phase One deal, but it is scheduled to expire at the end of December.”
“The threat of further tightening of U.S. stocks in 2021-22 may be a factor associated with the uptrend in cotton prices over the past 12 months,” the report said. “Whether or not the U.S. will sell a large amount of cotton to China in the new crop year should be a factor that determines how tight U.S. stocks will become.”
Another factor to watch for price direction remains Covid-19. ICAC and Cotton Inc. noted that the spread of the Delta variant has already led several important manufacturing countries such as Vietnam and Bangladesh to introduce protective measures that have shuttered factories.
“A macroeconomic outlook calling for strong global GDP growth suggests continued strength in mill demand,” Cotton Inc. said. “However, if health-driven restrictions are implemented in more locations, it could dampen consumer demand and manufacturers’ willingness to place orders.”