According To USDA Data, The Expectation Of Supply Easing Is Gradually Realized Due To The Increase Of Actual Broadcast Area

Last weekend, USDA released the 2024/25 annual crop sown area report, and the new annual sown area of American cotton was 11.67 million acres, an increase of 14.1% year on year. The total area of upland cotton is 11.488 million acres, with a year-on-year increase of 13.9%; The planting area of Pima cotton is 182000 acres, with a year-on-year increase of 23.8%.

After the data was released, the price of ICE cotton fell and fluctuated around 72 cents/pound. With the gradual release of new cotton planting data, the expected increase in production in the new year has been confirmed by stages. The following problem is how to realize the actual increase in production and the evolution path of downstream profit recovery. In this atmosphere, cotton price trend tends to be cautious, and the response to weather disturbance or inventory reduction and other bullish data is obvious. At the same time, as the cotton price gradually enters the undervalued range, and the trend of high temperature and drought in the Northern Hemisphere has strengthened its impact on crop growth and fermentation, the downward momentum of cotton price is also weakening, and the market is waiting for a new trading anchor. In general, the short-term rebound of cotton price may be supported by factors such as weather disturbance and psychological game before the weighing of new cotton. However, before the supply and demand pattern or macro turn, the short position logic of probable rate continues to dominate the market.

United States: According to USDA data, as of July 2, the area of arid areas in the United States accounted for 19%, an increase of 2.6 percentage points compared with the previous week (16%), which has remained at a low position in recent years, especially in extremely arid areas, which have little impact on cotton growth temporarily, but it should be noted that the trend of dry weather in North America has strengthened.

The planting of American cotton is nearing the end. By June 30, 2024, the planting of American cotton had been completed by 97%, a decrease of 1 percentage point over the same period of last year, and a decrease of 2 percentage points over the average value of the same period of the past five years. The budding rate of cotton in the United States was 43%, an increase of 5 percentage points over the same period last year, and an increase of 5 percentage points over the average value of the same period in the past five years. The boll setting rate of cotton in the United States was 11%, an increase of 2 percentage points over the same period of last year, and an increase of 2 percentage points over the average value of the same period of the past five years. 50% of American cotton grew well, 6 percentage points less than the previous week and 2 percentage points higher than the same period last year. The good rate is at a high level in the past five years. According to past experience, the good rate will decline over time. Pay attention to the change of the good rate in the later period.

On June 21-27, 2024, the contracted net export volume of American upland cotton in 2023/24 will be 26200 tons, an increase of 27% over the previous week, and a decrease of 23% over the average value of the previous four weeks. The net increase in contracted volume will come from China (14400 tons), Vietnam, Pakistan, Indonesia and Bangladesh.

India: Atul S., Chairman of Indian Cotton Association Ganatra said that as of July 1, India's cotton planting area was about 6 million hectares, and it has now completed 50-55%. In an interview with the media, he pointed out that since Maharashtra had planted more than 2 million hectares of cotton in the early period, this year's planting was faster than last year's. However, the sown area in many areas is decreasing, with the decrease in northern India reaching 40-50%. The planting area in Gujarat is expected to be 15-20% lower than that of last year, while the decrease in Rajasthan may reach 55%, down to 450000 hectares. The planting area in Maharashtra, Kandesh and Videlba may decrease by 5% to 10%. In general, he believes that cotton planting area in many regions of India is expected to decline in the long term due to rising labor costs and low output. Other summer crops are more economically viable, and cotton planting is increasingly retained in low water areas. He predicted that the cotton planting area in India would decrease by 10-15% in the long run.

The Cotton Association of India (CAI) announced that as of July 1, the total number of seed cotton on the market in 2023/24 increased by 140000 bales this week to 31.74 million bales. The private estimated daily arrival is about 18100 bags, mainly from Maharashtra and Gujarat.

In the past few weeks, the rainfall in India has steadily improved, mainly due to the increase of rainfall in the northwest and central states. As of July 2, the monsoon has covered the whole country, six days ahead of the average level in previous years, and has increased by 15 percentage points since June 26, easing the high temperature weather. However, the current national rainfall is 4% lower than the long-term average level.

Brazil: Harvesting is progressing steadily in major cotton producing states. In Mato Grosso, the largest production area, harvesting activities are still limited to the first crop of cotton. According to the data of the State Agricultural Economic Research Institute, this year, the first crop of cotton only accounted for a little more than 18% of the total planting in the state. The second crop of cotton will be picked in a few weeks. The production forecast remained good. The National Producers Association has raised its estimate, which is very close to the figure (3.6571 million tons of lint) proposed by CONAB (Cotton Committee) last month. The yield per unit area is expected to be slightly lower than the record level of the previous quarter.

Domestic market: July August is the flowering and bolling period of cotton growth in the Northern Hemisphere, and changes in temperature and light still have a great impact on the final yield. Light is very important for the development of cotton bolls, but at least for Xinjiang, China, there is no need to worry about the lack of light, and more attention should be paid to the impact of temperature. The optimum temperature for the growth and development of cotton bolls is 25-26 ℃. The temperature above 30 ℃ is already on the high side, while the temperature above 35 ℃ will cause obvious damage to the growth and development of cotton bolls. The long-term temperature above 35 ℃ will reduce the activity of pollen grains, affect fertilization, flowering and fruiting, and increase the possibility of cotton bolls falling off.

Recently, the weather in Xinjiang has generally increased. According to the weather forecast released by the Xinjiang Meteorological Bureau, the temperature in Xinjiang this July August is higher or slightly higher than that in previous years, and the precipitation in most regions is less than that in previous years. Specifically, the average temperature in Kezhou and Kashgar is 0.1~0.9 ℃ higher than normal, and 1.2~1.9 ℃ higher in other parts of Xinjiang. The precipitation in Ili River Valley, Tianshan Mountains, Kezhou and Hami is more than 50% more than normal, the precipitation in other areas of northern Xinjiang is less than 10% to 20%, the precipitation in Kashi, Aksu and northern Bazhou is less than 20% to 50%, and the precipitation in Hotan, southern Bazhou and Turpan is less than 50%.

The direct downstream spinning mills of cotton continued to lose money, and the price difference of fancy yarn can reflect the profits of the direct downstream. Here we select conventional cotton and cotton yarn (20560, 25.00, 0.12%) as reference. It can be seen from the figure that the current price difference of fancy yarn is at the bottom of the data from 2018 to now, and the profit of pure cotton yarn mills is limited. Xinjiang cotton mills can still make a little profit at a low cost. The mainland textile mills have lost more than 1000 yuan per ton, even for a year. Recently, due to the fall of cotton price, the spot profit of the spinning mill has improved, but due to the inventory cycle, the cost reduction will not be directly reflected in the cost in the short term, while the cotton yarn price has also fallen synchronously, and the short-term profit space continues to be under pressure.

At present, it is difficult for the price difference of fancy yarn to return to the high level. The low cost of new cotton yarn production capacity, the continuous subsidy policy in Xinjiang and the low price of imported yarn are gradually reshaping the structure of China's cotton textile market. It is a general trend to clear the backward production capacity, occupy the market with new low-cost production capacity and transfer to Xinjiang and other western regions, The eastern coastal areas, which are far away from Xinjiang and close to the port, shoulder the heavy task of industrial upgrading, upgrading to medium and high-end cotton yarn, blended yarn, and differentiated varieties, or focusing on the production of traceable foreign trade orders dominated by imported cotton. In the future, the low price difference of fancy yarn may become normal and even have the possibility of further compression, which undoubtedly creates greater pressure on the price of upstream cotton.

In terms of the operating rate, with the market entering the traditional off-season, the operating rate has declined seasonally, and the overall market atmosphere this year is cautious.

In terms of terminal consumption, according to the data of the National Bureau of Statistics, the retail sales of clothing, shoes and hats, and knitwear and textiles in China in May totaled 114.8 billion yuan, up 4.4% year on year. From January to May, the total retail sales of clothing, shoes and hats, knitwear and textiles were 585.6 billion yuan, up 2.0% year on year. In the first five months of this year, China's textile and clothing exports reached US $115.84 billion, a year-on-year increase of 1.4% (4.8% in RMB terms), 0.8 percentage points faster than that from January to April. Among them, textile exports reached 57.13 billion US dollars, up 2.6% year on year (6.1% in RMB); Clothing exports reached US $58.72 billion, up 0.2% year on year (3.5% in RMB).

On the whole, there is still a big gap between the export volume and the previous high level, so the upward transmission of profits is blocked, which is in sharp contrast with the continuous expansion of spinning and weaving capacity in the upstream.