Market Dynamics: Fund Shorting ICE US Cotton Futures Prices Rose Significantly, And The Market Contracted Volume Was Insufficient

In 2024, ICE US cotton futures prices experienced a relatively smooth rise and fall.

The first stage is the rising stage, and the operating range of ICE US cotton futures price (from January to early March) is 80~104 cents/lb. ICE US cotton futures prices began to stabilize and recover near 80 cents/pound, and accelerated to rise after February, mainly driven by the supply side. On the one hand, the signing progress of American Cotton in 2023/2024 is good; On the other hand, in January and February, USDA also continued to raise the export expectation of American cotton in the balance sheet of American cotton. The ending inventory of American cotton in 2023/2024 continued to be tight. After entering February, the seller's open price contract in 2023/2024 was converted into tons of American cotton, which was higher than the future flowable flux under the current expected output of the United States. The expectation of stock squeeze was strengthened. The net long rate of the fund rose by more than 30%, and the futures price of American cotton rose significantly.

The second stage is the decline stage, and the ICE US cotton futures price (end of February early September) operating range is 104~65 cents/lb. The delivery warehouse receipt of ICE cotton continued to rise, and the price continued to fall under the macro and capital game. The overall planting area growth of American cotton is still expected to be the mainstream of the market. At the same time, American cotton planting has accelerated, the excellent rate is at a high level in recent years, and the supply side pressure continues to increase. On the demand side, influenced by the weakening expectation of interest rate cut, the stronger US dollar index benefits US cotton exports, and there is still great uncertainty about the recovery of the US consumer market.

The third stage is the rebound but pressure bearing stage. ICE US cotton price (from early September to now) is 76~68 cents/pound. Macroscopic and industrial resonance. On September 18, the Federal Reserve announced that it would cut the target range of the federal funds interest rate by 50 basis points to the level of 4.75%~5.00%. In addition, the weather in the main cotton producing areas of the United States continued to be dry, and the American cotton output was expected to be less optimistic than the previous period, which to some extent supported the American cotton price.

The uncertainty of global cotton consumption in the future will increase significantly

From the USDA global cotton supply and demand table in 2024, the inventory consumption ratio in 2024/2025 will be slightly increased to 65.74%. In terms of output, it increased by 690000 tons to 25.3 million tons; In terms of consumption, an increase of 300000 tons to 25.09 million tons; The ending inventory was slightly increased by 250000 tons to 16.49 million tons. On the whole, due to the increase in consumption, the cumulative range of ending inventory is not large, but due to the relatively significant increase in output, the overall inventory consumption ratio increases.

Specifically, the USDA balance of supply and demand in December slightly increased the global cotton output and the ending inventory. However, due to the decline of the beginning inventory and the increase of consumption, the inventory slightly decreased by 0.09%. The global cotton output increased by 263000 tons, mainly due to the increase of 218000 tons in India, 22000 tons in Brazil, and 14000 tons in the United States. There may be room for further increase in China's output. The global consumption in 2024/2025 will increase by 124000 tons month on month, of which the consumption in China will decrease by 109000 tons, the consumption in India will increase by 109000 tons, and the consumption in Pakistan will increase by 87000 tons. The global cotton consumption will increase again due to Trump's victory, and the uncertainty will increase significantly.

The global cotton import in 2024/2025 will increase by 22000 tons on a month on month basis, of which China's import will decrease by 109000 tons to 1.851 million tons. There may still be room for further reduction. China's cotton consumption is weak, and the uncertainty of textile and clothing exports will increase. The global ending inventory will increase by 58000 tons month on month in 2024/2025, including 22000 tons in the United States, 27000 tons in Argentina, and 22000 tons in Brazil. The global ending inventory will increase by 404000 tons compared with 2023/2024. On a year-on-year basis, the global output increased by 960000 tons, the ending inventory increased by 400000 tons, and the overall supply pressure increased significantly. The increase was mainly due to the recovery of cotton production in the United States and the record cotton production in Brazil. In terms of demand, although the global cotton consumption increased over the previous year, it will still be lower than that in 2020/2021.

Strong cotton yield expectation in the United States, but flat demand performance

The United States is the world's third largest cotton producer and largest cotton exporter. From the supply and demand balance table in December, the cotton planting area of the United States is expected to be 11.17 million acres in 2024/2025; The expected cotton harvest area is 8.63 million acres; The unit yield of cotton is expected to be 792 pounds/acre, compared with 789 pounds/acre in November, an increase of 3 pounds/acre month on month. The increase in yield per unit area mainly comes from Southeast cotton region and Delta cotton region. In terms of output, the U.S. cotton output in 2024/2025 will be reduced from 3.48 million tons in May to 3.1 million tons in December, with an adjustment range of 380000 tons. Despite an increase of 480000 tons year on year, the average output in recent 10 years is still at a low level.

The market has a strong expectation of the high yield of new cotton in the United States. However, during the 2024/2025 cotton planting period in the United States, major production areas were frequently hit by hurricanes, leading to a decline in cotton growth indicators such as the excellent rate. At the same time, Texas and other important production areas also suffered from the further impact of dry weather, which led to an increase in abandoned farming, followed by an increase in abandoned farming rates, and ultimately lowered the cotton yield estimate. However, compared with the extreme drought in 2023/2024, these adjustments in 2024/2025 are relatively mild, and the final output may remain stable with little change, but it is necessary to pay attention to the progress of American cotton processing inspection.

According to the report released by USDA in December, the US cotton consumption in 2024/2025 is estimated to be 390000 tons, 10000 tons less than that in 2023/2024, and the overall performance is flat. In view of the expected bumper harvest of global cotton in 2024/2025, and the limited growth of global cotton textile and clothing consumption, the US export sales data appears weak. In particular, China's willingness to buy has remained cautious.

In addition to China, other countries, such as Pakistan, Bangladesh, Indonesia and other countries, also saw a significant decline in the number of American cotton contracts signed in 2024/2025.