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

The U.S. Department of Agriculture released its global cotton supply and demand balance sheet for February, once again raising the Chinese cotton production. As the 2024/25 season was already more than halfway through, the data for the 2023/24 balance sheet remained largely stable and thus has not been adjusted. However, the 2024/25 global production was forecast higher obviously. Specifically, China's production was increased by 220,000 tons, based on data from cotton ginning and inspection volumes, aligning with market expectations. Nevertheless, due to the production increase, China's imports were correspondingly reduced, but this shortfall was compensated by increased imports from Pakistan, Bangladesh, and Vietnam. The corresponding downward adjustment in consumption for the U.S. and India was largely offset by the upward adjustments from Pakistan, Bangladesh, and Vietnam.

Monthly production and consumption changes may trend towards balance. Following two significant adjustments in China's production, the global cotton production for the 2024/25 season has reached 26.23 million tons. As of February 12, China's cotton inspection volume stood at 6.3936 million tons, with an inspection progress of approximately 95%. As of the week ending February 7, 2025, the cumulative inspection volume of U.S. upland cotton and Pima reached 3.142 million tons, accounting for 100.1% of the estimated U.S. cotton production. Brazil's cotton production forecast remains relatively stable with minimal adjustments. Among the major producing countries, only India and Pakistan still have room for adjustments due to their arrival progress. As of the week ending February 10, 2025, India's cumulative arrivals for the 2024/25 season were 3.2259 million tons, reflecting a year-on-year increase of 4%. According to Cotton Association of India, the arrivals have reached 62.4% of the forecast production, up 6% year on year. Data indicated that the arrivals in December and January speeded up obviously, while CAI's production assessment was evidently underestimated; therefore, the USDA is unlikely to lower India's production estimate, with adjustments expected to be within±100,000 tons. As of January 31, Pakistan's new cotton arrivals for the 2024/25 season reached 854,000 tons, a year-on-year decline of 34%. According to PCGA data, the cotton production for the 2024/25 season is unlikely to exceed 900,000 tons. However, considering that USDA assessments often differ from PCGA (for example, PCGA's production for the 2023/24 season was 1.3 million tons, while USDA's was 1.52 million tons, partly due to some cotton farmers selling directly to private ginning factories to avoid taxes, leading to statistical omissions), a production estimate of 1.13 million tons is also considered reasonable.

The import and consumption by country may continue to undergo adjustments. An interesting change in the February balance sheet was that China's import decline was offset by increases in Pakistan, Bangladesh, and Vietnam; similarly, India's consumption decline was countered by growth in these countries. The USDA adheres to the principle of "stable growth" in cotton consumption, believing that the demand for downstream textiles and apparel is relatively robust, thus expecting no significant changes in upstream cotton consumption, merely a shift from A to B. The escalation of China-U.S. trade tensions also suggests that within the broader context of cotton import and consumption in East Asia, cotton consumption will shift among countries rather than disappear. However, this may also be a justification by the USDA to support U.S. cotton exports, especially since China, a major consumer of U.S. cotton, has significantly reduced its imports, necessitating other buyers to maintain trade balance. Of course, the USDA's perspective is generally well-received, and it is foreseeable that as the China-U.S. trade war escalates, China is likely to reduce U.S. cotton imports. The focus of cotton textile consumption will shift towards regions like the Belt and Road Initiative and domestically, which will in turn affect the export patterns of textile-producing countries in Southeast Asia. Consequently, the trade of cotton as a raw material will also change, though it will still be within the global context.

Looking ahead, the balance sheet for the 2024/25 season is expected to stabilize. With a significant reduction in beginning stocks, the ending stocks are projected to increase by over 1 million tons, indicating persistent sales pressure. From the planting expectations for the 2024/25 season, Brazilian cotton previously faced delays in soybean harvesting and second-crop cotton planting due to rainfall in Mato Grosso, but the latest data shows that new cotton planting has significantly accelerated, with the year-on-year lag narrowing to 7.9%. According to January estimates from Conab, the planted area is projected to be 2.0056 million hectares, a year-on-year increase of 3.2%, while the yield is expected to decrease slightly year-on-year, with an estimated production of 3.7 million tons, reflecting a small year-on-year increase. There is still some time before new cotton planting in China and the U.S. begins, so future attention will focus on the intended planting area for cotton.