The February global production demand forecast released by the International Cotton Advisory Committee (ICAC) believes that global cotton exports continue to be affected by logistics problems.
As the 2021/22 year passes, ICAC conducted a comparative analysis on production demand forecasts and actual conditions. In March 2021, ICAC released its first forecast for 2021/22. At that time, the Kotruk A index was at 94.35 cents/pound and was rising steadily. Judging from historical experience, when cotton prices are high, cotton farmers will increase planting area. As cotton planting is expected to expand and the abandonment rate is expected to decrease, cotton supply is expected to increase in 2021/22. Taking into account the impact of the delay in India’s agricultural reform, ICAC expects India’s cotton planting area to remain stable, with the possibility of a slight increase in the planting area in some major cotton-producing areas, such as Maharashtra, Telangana and Gujarat.
ICAC’s second forecast was released in June 2021, which coincided with the start of the 2021/22 season. At that time, ICAC expected global cotton production to reach 25.5 million tons, a year-on-year increase of 5%, and the planting area in the United States and West Africa increased significantly. Due to higher farm prices in Mali, West Africa’s cotton output is expected to reach 1.47 million tons, a year-on-year increase of 38%. China’s cotton planting area is expected to decrease, and cotton production is expected to be 5.7 million tons. Global cotton consumption is expected to increase to 25.3 million tons due to economic recovery after the epidemic. Global cotton trade volume is expected to be 10 million tons, and imports from major cotton-consuming countries are expected to increase.
Currently, the Kotruk A index is at 136.45 cents, an increase of 44.63% from the first forecast, the highest level in the past 11 years, which greatly exceeded the expectations of market participants. Originally, the market believed that high cotton prices would cause the cotton planting area in India to remain stable or increase slightly. However, in fact, except for two low-yield areas in India, Punjab and Madhya Pradesh, the cotton planting area in other cotton-producing areas in India decreased.
In June 2021, ICAC released its first detailed forecast for 2021/22. Global cotton production is expected to be 25.5 million tons. The actual production is now 26.4 million tons, a year-on-year increase of 9%. The main reason for the increase is West Africa, Brazil and Expanded acreage and increased yields in the United States. However, planting is very active in some areas of Brazil and Australia. At present, 63% of Brazil’s planting has been completed. Due to the increase in farm prices, Mali’s cotton production has also reached 340,200 tons. China’s cotton planting area and output are estimated to be 3.02 million hectares and 5.73 million hectares respectively. tons, in line with the June forecast.
In 2021/22, global cotton consumption is expected to be 25.66 million tons, a year-on-year decrease of 0.17%. The reason is that high cotton prices have caused textile mills to be unwilling to replenish their inventories in large quantities. Currently, many cotton mills are using low-priced raw material stocks to maintain production to meet Rapid growth in downstream demand after the epidemic. Although the high level of cotton demand has a positive impact on the market, there is very little cotton at the right price, which will undoubtedly cause trouble for many cotton mills to replenish their stocks. From the perspective of supply and demand forecast, global supply and demand are basically balanced. However, in addition to high prices, problems with the cotton logistics system also plague the industry. If cotton cannot form an effective supply, there will also be a contradiction between supply and demand. Although the logistics problem is now beginning to be solved, the problem still exists.
In the last few months of 2021, ICAC expects cotton imports from major cotton-consuming countries to slow down, as can be seen from the US cotton export data in the fourth quarter of last year. U.S. exports to Pakistan began to decline in the second quarter of last year and continued until the end of 2021. The same situation also occurred in Bangladesh, China, Indonesia, Turkey and Vietnam. The only country bucking the trend is Mexico, as the country shares a border with the United States and logistical issues are relatively easy to solve.
In addition to logistics issues, high cotton prices may also lead to increased use of chemical fibers. Ten years ago in 2010/11, cotton prices soared to a record high of 234.40 cents/pound on April 7, 2011. At that time, the price of polyester short-length fabrics in China was 99.10 cents/pound, and the price difference between the two reached 135.30 cents. cents/pound. Although the current price difference between the two is also very large, it is only 83.68 cents/pound. The biggest difference between the two years is that in 2009/10, global cotton was in serious short supply, causing cotton prices to skyrocket in 2010/11. In addition, speculation in cotton futures has also contributed to rising cotton prices. On the other hand, in 2021/22, the global cotton supply is sufficient and can fully meet the demand. It is only due to logistics problems that there is a misalignment of supply and demand, rather than a real supply shortage. Logistics problems may have a similar impact on chemical fiber and cotton. How exactly do they affect cotton? The market still needs to be closely observed.
Based on the above analysis, ICAC’s forecasts in March and June last year were correct, except that the increase in planting area and production was slightly underestimated. As the year progresses, the forecasts for increased consumption and imports are also basically correct. However, the current shipping and logistics delays have caused a mismatch between supply and demand, which if not resolved soon, will cause trouble for many major cotton consuming countries. As the current year enters its end, forecasts for 2022/23 are also beginning to be put on the agenda. Undoubtedly, prices, logistics, geopolitical and social issues, as well as factors such as the epidemic, weather, and pests will continue to affect the forecast for 2022/23. In March 2022, ICAC will release its first forecast for 2022/23, so stay tuned.
ICAC predicts that the Kotruk A index in 2021/22 will be between 94 and 117 cents/pound, with the midpoint being 104 cents/pound.
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