Global Information: USDA Released The Global Cotton Supply And Demand Report In August 2023

 

In the early morning of August 12, Beijing time, the U.S. Department of Agriculture released the global cotton supply and demand report for August 2023. This report shows that the US cotton output is 3.046 million tons, 546000 tons lower than that of last month; The consumption of cotton in the United States was 468000 tons, 11000 tons lower than the previous month; The ending inventory of American cotton was 675000 tons, down 152000 tons from the previous month. The global cotton output was 24.846 million tons, 592000 tons lower than last month; Global cotton consumption was 25.46 million tons, up 107000 tons from the previous month; The ending inventory of global cotton was 19.943 million tons, 636000 tons lower than the previous month. Inventory consumption fell 2.8% month on month, and the overall report was too much.

In terms of supply, the global production decline is dominated by the United States, while other major producers remain unchanged. The decline in US output reflects the worsening drought in southwest China, resulting in an increase of 8.2% to 22.3% in abandoned farmland rate and a decrease of 52% to 779 lb/acre in unit yield, with an overall decline of 15.2%. The decline of American cotton production was far beyond the market's estimated range, so after the report was released, the main contract price of the external market hit a new high at the end of July. At present, the drought degree and coverage index of American cotton production area are at a higher level than the average in recent five years, and the corresponding estimated abandonment rate is also within the range of the average in five years. However, under the extreme drought last year, the per unit area yield of American cotton still reached a new high of 950 pounds/acre.

This year, the drought situation improved year on year, but it was the second lowest level in the last ten years. The unit yield data in this report is questionable. According to the historical data, the deviation degree of the final unit yield when the abandonment rate reaches more than 20% is basically more than 10% compared with the estimated situation in August. It can be seen that it is difficult to accurately estimate the per unit yield at the current stage, while the possibility of upward adjustment of per unit yield of American cotton is very high in the later stage. At present, India's planting area is in a steady growth stage, with a total area of 12.13 million hectares, slightly lower than the same period last year by 12.400 hectares. This year, because the monsoon rainfall is more in the north and less in the south, the current planting area is more distributed in southern India than in previous years. Recently, most areas in northern Xinjiang have been covered by rainfall, and the risk of high temperature and heat damage has decreased.

In terms of demand, the increase in global cotton consumption this time is mainly reflected in China, with an increase of 109000 tons over the previous month. At present, during the transition from off peak season to peak season, orders in some regions have improved, among which Nantong home textile market is outstanding, while Guangdong, Zhejiang and other clothing markets are relatively flat. The downstream has expectations for demand in peak season, but the overall sentiment is not high. Under the condition of textile profit loss, the raw material reserves remain at a low level, while the start-up level remains stable, and the market is still waiting for the start of the market.

From the perspective of Southeast Asian textile countries, the start-up rates of India and Pakistan rose slightly in August, but there is still a significant gap compared with the commencement in 2021, and the overall market situation remains depressed. In the first half of the year, the import data of textiles and clothing in the terminal European and American markets fell by 20% year on year. At present, the inventory of clothing and fabric wholesalers in the United States still maintains a downward trend. The expectation of rising economic growth rate in overseas markets has not yet shown a positive effect on global textile and clothing consumption.

Although this report made downward adjustments to the ending inventory of cotton in the United States and the world, the market did not recognize the extremely deteriorating yield level in the United States, and the main contract in the external market showed a trend of rising and falling. It is expected that in the short term, it will still be in a state of shock operation in the 85-90 cents/pound range. However, under the trend of rising net positions of the CFTC Fund and convergence of the internal and external price differences, Further breakthroughs are more likely. While the internal market is in a trend of adjustment under the circumstances of weather driven weakness, demand has not yet started and policy pressure has accumulated, we can consider the cost reduction and gain of put option strategy.

Before the cotton harvest in the new season, it still maintained the idea of being on the high side, but the fourth quarter may face the risk of falling back.