The National Cotton Federation of the United States stated that global cotton consumption will continue to recover in 2021. After a sharp decline in consumption due to pandemic lockdowns and restrictions in 2020, global cotton consumption increased significantly by 17 million bales in 2020/21 to nearly 120 million bales. The USDA currently estimates global consumption in 2021/22 to be 123.4 million packages, an increase of 3.5 million packages year-on-year. If realized, this would be the fourth-highest level on record.
Global cotton production in 2021/22 is expected to exceed 120 million bales, 8.1 million bales more than in 2020/21, with the United States, Pakistan, Australia and Brazil seeing the largest increases. China’s production is expected to be 2.8 million bales lower than in 2020. In the 2021/22 season, the area planted to cotton in the United States dropped by 7.5% (nearly 1 million acres). Overall, crop conditions in the United States for 2021/22 are much better than in past years. In the southwestern United States, the abandonment rate dropped from 49.2% in 2020 to 17.0% in 2021.
In October, the USDA estimated U.S. cotton production at 18 million bales, 3.4 million bales higher than in 2020. Exports in 2021/22 are expected to be 15.5 million bales, factory consumption is 2.5 million bales, and ending stocks are estimated at 3.2 million bales. However, export shipments in 2021/22 have been below average due to delays in the new cotton harvest and last year’s smaller production and lower ending stocks.
By the end of 2021, global cotton stocks are expected to drop to 87.1 million bales. Current trading conditions – including low U.S. inventories, large on-call contract volumes and speculative trading – continue to support gains in futures prices, which are currently at their highest levels since 2011.
The continued rise in cotton prices may lead to weaker demand growth momentum, which may shift fiber consumption to lower-priced man-made fibers. Currently, cotton mills need cotton for shipment in the coming months, so demand is strong and supply is tighter. Securing enough cotton to sustain production is likely to be a high priority in the coming months, so shipping issues are of great concern in the coming months.
As COVID-19 restrictions ease and the world’s economies reopen, supply chains are facing different pressures than before. The impact of supply chain issues on cotton is unique and heightened due to cotton’s lack of substitutability relative to other commodities, cotton’s reliance on containerized export shipments, and cotton’s reliance on the Los Angeles/Long Beach ports.
Looking ahead to 2022, the ICE Futures 2022-12 contract is currently trading around 90 cents. Based on the current price ratio of cotton to other competing commodities, cotton area may increase in 2022. However, cotton farmers will face higher input costs in 2022, as well as issues with the availability of some inputs. Supply chains are critical for production inputs, yet are vulnerable to tariffs and trade disputes, cyberattacks, hurricanes and droughts. On top of that, COVID-19 has affected nearly every aspect of the supply chain, from transportation costs to labor availability.
Pesticide and fertilizer prices have risen significantly since this spring. In the southeastern United States, the average price of nitrogen fertilizer increased by 75%. With inflation expected to rise in 2022, input prices are likely to rise again ahead of the 2022 planting season.
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