Monthly Economic Letter: June 2024

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Cotton Market Fundamentals & Price Outlook

Recent Price Movement

Most benchmark prices decreased over the past month.

  • Relative to one month ago, the soon-to-expire July NY/ICE futures contract dropped from 77 to 72 cents/lb. However, a surge in the second half of May lifted July prices as high as 82 cents/lb.
  • The December NY/ICE futures contract fell from 75 to 72 cents/lb over the past month. Prices for the December contract also rallied in the second half of May, which brought values for the December contract as high as 79 cents/lb.
  • The A Index decreased from 86 to 83 cents/lb over the past month.
  • The Chinese Cotton Index (CC Index 3128B) moved slightly lower, easing from 104 to 102 cents/lb in international terms. In domestic terms, values fell from 16,500 to 16,200 RMB/ton. The RMB was relatively stable against the dollar, near 7.24 RMB/USD.
  • Indian spot prices (Shankar-6 quality) declined from 88 to 85 cents/lb. In domestic terms, values decreased from 57,500 to 55,900 INR/candy. The INR held near 83 INR/USD.
  • Pakistani spot prices were stable near 86 cents/lb. In domestic terms, values were constant at 19,700 PKR/maund. The PKR was steady around 278 PKR/USD.

Supply, Demand, & Trade

The latest USDA report featured only marginal changes to world production (+91,000 bales to 119.1 million) and mill-use (+80,000 bales to 116.9 million) for the upcoming 2024/25 crop year. Historical revisions lifted beginning stocks +493,000 bales to 81.0 million. The net effect of these updates for global ending stocks was a slight increase (+480,000 bales) to 83.5 million.

At the country-level, the largest change in harvest expectations in the 2024/25 crop year was for Burma (+91,000 bales to 571,000). For 2023/24, the only change over 100,000 bales was for India (+200,000 bales to 26.2 million).

For mill-use, the only change of 100,000 bales or more for the 20242/5 crop year was for Vietnam (+100,000 bales to 7.1 million). However, there were several notable revisions to figures for 2023/24. These included adjustments for Turkey (-200,000 bales to 6.5 million), Brazil (-100,000 bales to 3.1 million), Pakistan (-100,000 bales to 9.2 million), India (+100,000 to 24.8 million), and Vietnam (+100,000 bales to 6.9 million).

The global trade forecast for 2024/25 was unchanged at 45.0 million bales. In terms of imports, the only change for the 2024/25 crop year of 100,000 bales or more was for Vietnam (+100,000 bales to 7.1 million). For 2024/25 exports, the only notable changes were for Australia (+100,000 bales to million) and India (-100,000 bales to 1.9 million).

There were more significant updates for trade in 2023/24. The U.S. export figure dropped -500,000 bales to 11.8 million. Other changes to 2023/24 export estimates included those for Australia (-200,000 bales to 5.8 million), Brazil (+300,000 bales to 12.4 million), India (+100,000 bales to 2.2 million), and Kazakhstan (+100,000 bales to 400,000). Revisions for 2023/24 import figures included those for Pakistan (-100,000 bales to 2.7 million), Turkey (-200,000 bales to 3.5 million), and Vietnam (+100,000 bales to 6.9 million).

Price Outlook

At this early stage ahead of the onset of the 2024/25 crop year, there is plenty of time for developments to alter the outlook. Current expectations unambiguously suggest there will be more cotton production, implying more fiber available for consumption and trade. However, there is less certainty about how strong demand may be to absorb additional fiber.

The shock of inflation and sharply higher interest rates has been registered, and economies around the world have had the opportunity to digest these changes. Although some slowdown is anticipated for the U.S., this important consumer market for apparel avoided recession after the increase in interest rates (the International Monetary Fund or IMF estimates real U.S. GDP growth to have been 2.5% in 2023 and is projecting growth to be 2.7% in 2024 and 1.9% in 2025). Europe experienced a deeper decline in growth, but is inching towards improvement (IMF estimates real GDP growth in the Euro Zone to have been 0.4% in 2023 and is forecasting growth of 0.8% and 1.5% in 2024 and 2025). This suggests that after a period of lingering concern about recession the outlook for these major consumer markets for downstream goods appears to be on more stable footing. If fear of an imminent economic downturn can fade, it could give retailers and brands more confidence to place larger downstream orders.

Similarly, an eventual bottoming out in cotton prices may provide spinning mills confidence to make more purchases. After the 2021/22 spike, settlement values for the NY/ICE contract only briefly fell below 75 cents/lb (fell as low as 72 cents/lb at the end of October 2022) before bouncing back up into the 80s and beyond for most of the trading that has occurred since then. With weak downstream demand during this period, prices holding above longer-term averages may have appeared uncomfortably high for spinning mills, particularly when they followed the sharp collapse in prices around the middle of 2022 that caused serious financial harm that was prolonged by the shipping crisis.

The current pullback in prices could allow for a more definitive bottom in the market to develop, which could eventually support purchases because there would be less room for prices to fall and more potential for prices to eventually rise. An improvement in buying interest appears embedded in USDA projections, with all the world’s top spinning countries expected to consume more fiber in 2024/25. There have been some reports of increased order placement throughout supply chains, but with geopolitical uncertainty and interest rates at non-stimulative levels, the recovery in demand could be gradual. Price direction can be expected to be determined by the uncertain speed and strength of any recovery in demand, which will have to be balanced against what appears to be a likely increase in global production and exportable supply.

Read the full Monthly Economic Letter: June 2024.