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

Recently, the USDA released its March global cotton supply and demand estimates. The main adjustments included upward revisions to production, consumption, and import/export volumes for the 2024/25 season, resulting in a slight decrease in ending stocks overall. As anticipated in last month's balance sheet forecast, the USDA further increased China's production and decreased Pakistan's production, aligning with assessments from major institutions in both countries. On the import side, a decrease in China's imports was offset by an increase in Pakistan's, while an increase in Bangladesh's import forecast led to an overall increase in imports. Over the past six months, Bangladesh's apparel exports have consistently shown positive year-on-year growth, with strong downstream data supporting cotton consumption growth. Consequently, consumption growth was also attributed to Pakistan and Bangladesh. On the export side, Brazil and Turkey saw slight increases, while Australian cotton exports are forecast to decrease slightly.

After increasing the production-consumption gap for five consecutive months, the USDA's balance sheet finally halted the widening of this gap in March. Regarding the current adjustments, there are no significant contradictions overall, and there is limited room for upward revisions to US cotton production and export assessments. Examining the historical relationship between cumulative upland cotton + Pima cotton inspection volumes and US cotton production over the past few years, inspection volumes typically exceed the final production assessment by 30,000-60,000 tons. As of the week ending March 7, 2025, cumulative US upland cotton + Pima cotton inspection volumes totaled 3.178 million tons, representing 101.2% of the US cotton production forecast, exceeding the USDA's production assessment by 38,000 tons, which falls within a reasonable margin of error.

Regarding exports, as of the week ending March 6, the total export sales of U.S. upland and Pima cotton for the 2024/25 marketing year reached 2.3704 million tons, accounting for 99% of the annual projected total exports (2.39 million tons). Cumulative export shipments amounted to 1.2427 million metric tons, representing 52% of the total export sales. Currently, export sales are at a historically fast pace, but export shipments are relatively lagging. The main reason is that although major importing countries have accelerated their export sales for the 2024/25 marketing year, actual shipments are slower. Except for China and Pakistan, the shipment progress of other countries is behind the same period last year. In addition, the continuous growth of Brazilian cotton exports in the 2023/24 and 2024/25 marketing years is constantly squeezing the market share of U.S. cotton. Coupled with the expected decline in global exports for the 2024/25 marketing year, U.S. cotton exports are further declining. Currently, the basis difference between Brazilian cotton and U.S. cotton priced in RMB domestically is 1,200-1,50yuan/mt. This significant price difference is significantly hindering U.S. cotton procurement. Therefore, under the current price difference conditions, the growth momentum of Brazilian cotton exports will remain strong, and it is expected that the U.S. cotton export forecast will be difficult to revise upward.