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

The USDA has released the global cotton supply and demand for October last week, with minor adjustments. Although there were significant monthly adjustments in global beginning stocks, ending stocks, and production, these were mainly because USDA shifted ahead by one year Brazil's 2000/01-2022/23 production estimates. Apart from this adjustment, the main adjustments were downwards revisions in the production and export volumes of the United States and Australia for the 2023/24 crop year.

1. USDA's Oct supply and demand report

In detail, USDA largely maintained its previous estimates for global cotton supply and demand for the 2022/23 crop year. Apart from a 10,000-ton downward adjustment in India's export volume, which was based on updated data, most other data had already been adjusted in the September report. On an annual basis, global cotton imports, exports, and consumption were all lower compared to the previous season, resulting in a significant accumulation of stocks and putting pressure on the beginning stocks for the 2023/24 crop year.

The monthly adjustments for the 2023/24 global cotton supply and demand mainly came from the United States, Brazil, and Australia. Brazil's beginning stocks decreased by 2.31 million tons, production was revised upward by 170,000 tons, and ending stocks decreased by 2.15 million tons due to the change in the accounting year. Additionally, both the United States and Australia had downward revisions in production by 70,000 tons, downward revisions in export volume by 20,000 tons, and downward revisions in ending stocks by 40,000 tons. Other cotton-producing regions mostly maintained their previous forecast. Overall, the trade and consumption outlook for the upcoming cotton crop year appears optimistic, with a trend of reducing ending stocks.

2. How to interpret the permanent accounting change of Brazilian cotton?

The permanent accounting change for Brazilian cotton mentioned in the USDA report refers to adjusting the supply and demand balance sheet for Brazil's cotton from the 2000/01 crop year onwards. This adjustment resulted in a monthly decrease of 2.31 million tons in the ending stocks for the 2022/23 crop year and a monthly decrease of 2.15 million tons in the ending stocks for the 2023/24 crop year. In practice, the production and stocks of Brazilian cotton were shifted one year later to align with the cotton crop year of the Northern Hemisphere. For example, the USDA's balance sheet for the Brazilian cotton 2023/24 crop year reflects the actual harvested production from August 2023 to July 2024, as cotton picking in Brazil is concentrated in August/September each year, and by October, the picking for the current year is already completed. According to CONAB data, Brazil's cotton production for the 2022/23 crop year was estimated at 3.17 million tons, which is considered as the cotton production for the 2023/24 crop year in the USDA's balance sheet. This adjustment facilitates a direct comparison of global cotton supply and demand within the same crop year but renders the prediction functionality of production valueless. Based on the CONAB cotton supply and demand balance sheet, the estimated production for the upcoming cotton crop year in Brazil is slightly lower but still at a high level.

3. U.S. cotton production forecast

Apart from the adjustment for the Brazilian accounting year, this month's USDA balance sheet mostly maintained its previous estimates, with only minor downward revisions in US and Australian cotton production. Due to the drought condition, USDA has adjusted lower the US cotton production expectations over the past three months. The adjustments amounted to 550,000 tons, 190,000 tons, and 70,000 tons, respectively, with the current production estimate reaching a historical low of 2.79 million tons.