Interpretation of USDA's Apr supply and demand report on cotton

Last Friday, the US Department of Agriculture released the global cotton supply and demand balance sheet for April. The adjustments mainly lowered the beginning stocks for the 2023/24 season while increasing both imports and exports. Production and consumption adjustments were relatively minor, with the overall direction remaining neutrally bullish. ICE cotton futures market mainly moved sideways weakly, down to around 80cent/lb. The adjustments this month did not cause significant fluctuations in market expectations, while the strong US dollar index and the continuous decline in net money long positions in ICE have continued to suppress ICE cotton.

Specifically, regarding production, the USDA reduced the output for the 2023/24 season by 10,000 tons, with the production of major cotton-producing countries remaining stable. Import volumes were increased by 150,000 tons, with China's imports being raised once again, this time by an increase of 280,000 tons, while imports of Pakistan were lowered by 90,000 tons to 650,000 tons. For exports, Brazilian cotton exports increased by 110,000 tons to 2.55 million tons, India increased by 20,000 tons to 460,000 tons, Turkey increased by 30,000 tons to 300,000 tons, and Australia increased by 50,000 tons to 1.31 million tons.

In terms of consumption, aside from an 110,000-ton increase to 8.27 million tons for China, there were decreases of 40,000 tons for Turkey and 70,000 tons for Pakistan. Ultimately, ending stocks were reduced by 60,000 tons, primarily due to reductions in ending stocks in Brazil, Australia, Pakistan, and India. While US cotton ending stocks were not reduced in this report, Chinese stocks continued to accumulate. Overall, this month's global cotton ending stocks are almost consistent with the same period last year, with consumption increasing in China while still showing a downward trend internationally, potentially exerting some pressure on international cotton prices.

Overall, the changes in monthly production and consumption of global cotton by the USDA in April are among the smallest for the entire 2023/24 season. The stable consumption is mainly due to higher forecast on Chinese consumption. However, recent signals from the Chinese domestic downstream industry indicate some weakness, and there is a slow downward trend in operating rates. Although we cannot definitively say that Chinese cotton consumption will not increase based on these data, continuous adjustments, even exceeding last year's levels by 110,000 tons, seem somewhat biased (especially considering that demand performance since March this year has been weaker than last year).

Compared to the USDA's stable estimate for Brazilian production, the CONAB April supply and demand balance sheet once again increased the output for the 2023/24 season by 39,900 tons to 3.6 million tons, which differs significantly from the USDA's estimate of 3.17 million tons. Therefore, there may be a possibility of an upward adjustment in the USDA's May report. Overall, with the coming planting season in the northern hemisphere, the impact of forecasts for new planting areas and production on international cotton prices will increase. Keep an eye on the weather and new cotton crop planting conditions.