Cotton Prices Cool Off in Global Markets; Broader Factors Still Positive

Cotton prices have eased of late in Indian as well as global markets. The slowing of the sales due to the higher price levels has curbed the price rise in the last few weeks. But moving forward we expect prices to remain on the upward path because of the tightening inventory situation and stable demand outlook for the yarn market.

The latest U.S. Department of Agriculture (USDA) cotton projections for 2022/23 (August-July) indicate a slight decline in global cotton ending stocks, compared with 2021/22, as mill use remains above production.

World cotton stocks are projected at 82.8 million bales at the end of 2022/23, the lowest in 4 years. This season’s stock decline is mainly due to a fall in the stocks of the United States and India. The fall is moderated somewhat by a projected increase for Brazil. As per the report China is forecast to account for 44 percent of the 2022/23 global cotton stock total, while Brazil and India contribute an additional 16 percent and 9 percent, respectively. Indian cotton 29 mm fiber prices are down roughly 4 percent month on month but nearly double when compared every year.

Considering the impact of the increase in the planted area, global cotton production is forecast nearly 4 percent higher at 121.3 million bales in 2022/23. The USDA has projected larger production for most of the major cotton-producing countries in 2022/23, led by India (+3 million bales), China (+0.5 million bales), and Brazil (+0.5 million bales). For 2022-23, the global cotton harvested area is forecast at 33.5 million hectares (82.9 million acres), which is roughly 4 percent above 2021/22 and the largest in 3 years. Higher prices have supported the rise in the sown area worldwide.

Global Cotton Mill Use Projected Lower but World Trade Projected Higher:

The global mill use is projected marginally lower at 121.5 million bales. As inflationary pressures are likely to impact the world’s economy, the USDA expects a decline in cotton mill use. But irrespective of the decrease in world cotton mill use estimate for 2022/23, global cotton trade is forecast to increase 5 percent from 2021/22. The United States and Brazil are likely to dominate the export market as per the USDA report. World cotton trade in 2022/23 is forecast at 47.5 million bales, 2.3 million above the year before. The increased supplies in Brazil and Australia are expected to push exports to their second-highest on record. 

Therefore, higher trade expectations are projected for these two countries. Brazil’s cotton exports are forecast at 9.8 million bales (+1.9 million bales) in 2022/23, while Australia’s exports are projected to reach 5.7 million bales (+1.3 million bales). However, the exports for the United States and India are estimated slightly below last year.  While U.S. cotton exports are forecast to decrease from 250,000 bales to 14.5 million bales in 2022/23, shipments from India are projected to decline from 300,000 bales to 4 million bales.

The global cotton inventories are expected to decrease once again as the global cotton mill use is projected to slightly exceed the production of 2022/23. World ending stocks are forecast at 82.8 million bales by the end of 2022/23, compared with 83 million bales for 2021/22. As the global stocks-to-use ratio remains at one of the lowest levels of the previous 10 years, the primary direction of cotton prices is most likely to remain upwards this year.