Market Analysis: Policy And Market Performance Factors Cotton Prices Continue To Fall In The Forecast Period

From last Friday to this Thursday, the December cotton contract fell 9 points to close at 67.15 cents/lb. It hit a new closing low of 67.05 cents/pound on Wednesday.

The US Department of Agriculture (USDA) unexpectedly lowered the US production forecast in its monthly supply and demand report, which briefly boosted the market, but this momentum failed to continue. The short position of speculators has reached a record level, and the selling continues this week. Chinese cotton (14690, -40.00, -0.27%) also fell, dragging down American cotton futures.

Monday's USDA monthly supply and demand report led to a surge in daily trading volume, but other aspects were flat. The total number of positions increased by 3352 to 230009.

US Department of Agriculture unexpectedly cuts US cotton production forecast

The monthly supply and demand report of the U.S. Department of Agriculture in August showed that the output of the United States dropped significantly. US production is estimated at 15.1 million bales, 1.9 million less than the previous estimate. The export volume is estimated to decrease by 1 million to 12 million packages. These changes reduced the estimated ending inventory by 800000 to 4.5 million packages.

The USDA updated the planting area estimate in the report. The cotton planting area in Texas is estimated to be 5.95 million acres, 435000 acres in Oklahoma and 130000 acres in Kansas. Texas cotton production is estimated at 4.5 million bales, Oklahoma 430000 bales and Kansas 190000 bales. The decline of Texas production is unexpected, but considering the recent hot and dry weather, we cannot rule out the possibility of production reduction. In terms of global supply and demand, the cotton ending inventory is estimated to decrease by 5.02 million bales to 77.61 million bales.

The global cotton consumption is estimated to decrease by 980000 bales to 116.21 million bales. A significant change is that China's imports decreased by 1.5 million bales, reducing the country's total imports to 10 million bales.

The external market rebounded, and the Federal Reserve is expected to cut interest rates at its meeting in September

The main markets rebounded due to the cooling of inflation data, and it is almost certain that the Federal Reserve will cut interest rates at its meeting in September.

The consumer price index (CPI) and producer price index of the United States in July were lower than expected. CPI rose 2.9% year on year and fell below 3% for the first time in three years. PPI rose 0.1% month on month and 2.2% year on year.

The last time the Federal Reserve raised interest rates was in July 2023. Since then, it has remained at the highest level in 20 years. Due to high inflation and strong labor market, the Federal Reserve has been hesitant to cut interest rates. However, the lower inflation data that lasted until July made them reassess their position. In the coming months, as the Federal Reserve decides whether to cut interest rates, the labor market will become the focus.

The US retail sales data in July encouraged the market, indicating that US consumers continued to spend. Overall, retail sales increased by 1% month on month and 2.66% year on year. However, the sales of clothing and clothing accessories decreased by 0.1% month on month, but increased by 2.5% year on year.

Weekly export sales performance was flat

The export sales report released by the US Department of Agriculture (USDA) on Thursday showed that in the week ending August 8, the net export sales of US cotton in the current year increased by 111000 bales, 115% less than the previous week, and 123% less than the average of the previous four weeks. Next year, the export sales of American cotton will increase by a net of 4000 bales. The export shipment of American cotton was 131300 bales, down 83% from the previous week and 54% from the average of the previous four weeks, including 27400 bales exported to China. In the current year, 125100 bales of American cotton were newly sold. In the next year, American Cotton will sell 4000 bales.

The excellent rate of American cotton increased

The U.S. Department of Agriculture (USDA) announced in the weekly crop growth report that the excellent rate of American cotton was 46% by the week of August 11, 2024, 45% the week before, and 36% the same period last year.

This week, Texas cotton quality rate rose 1% to 33%. Oklahoma was still 61%, and Kansas was down 6% to 51%. Due to the hot and dry weather in recent weeks, the crop situation in southwest China is doubtful.

As of the week of August 11, the boll setting rate of American cotton was 74%, 60% the previous week, 69% the same period last year, and 73% the five-year average. The boll filling rate of American cotton was 13%, 8% the previous week, 12% the same period last year, and the five-year average was 12%.

In the past week, the weather in southern Texas has been good, so that harvesting continues uninterrupted. However, heavy rains in July and early August still raised concerns about production and quality.

The temperature in western Texas, Oklahoma and Kansas reached three digits for several consecutive days, and the humidity was very low. Although crops are growing slowly, heat and lack of water have affected dryland crops. The outlook for temperature and precipitation is not optimistic.

Focus next week

Next week's data release will be slower. Continue to pay attention to the regular reports related to the cotton market. It is also necessary to pay close attention to the weather forecast because the crops are struggling under high temperature.