Adams: National Cotton Council Hopeful Continued Demand Will Solidify Prices

By Dr. Gary Adams

President/CEO National Cotton Council

■ Where does world demand stand?

World cotton demand continues to recover. In August, the U.S. Department of Agriculture projected world consumption of 123.3 million bales, which is 4.3 million bales more than the 2020-21 marketing year.

If realized, this would be the highest level since the 2007 marketing year and the third highest level on record.

Following the large consumption decline due to COVID shutdowns and restrictions in 2020, world consumption made a remarkable 16.2 million bale recovery to reach 119.0 million bales for the 2020-21 marketing year. U.S. mill use is estimated at 2.5 million bales during the 2021-22 crop year, which, unfortunately, still is below pre-COVID levels.

Looking a bit further down the supply chain (specifically at U.S. retail), consumer spending on clothing/clothing accessories increased to a record level in June — as reflected in the Census Bureau’s published monthly U.S. retail trade data. Compared to pre-COVID levels, the June spending level was 16% greater than in June 2019.

■ What about cotton production?

World cotton production is projected to increase in 2021-22 largely due to higher production in the United States, Brazil, India, Australia and Mali, offsetting a 2.7 million bale decline in China.

USDA also released the first “survey-based” U.S. cotton production estimate in August. The U.S. crop is estimated to be 17.3 million bales for the 2021-22 marketing year, which is 2.7 million bales more than the previous marketing year but down by more than 500,000 bales from USDA’s July estimate due to a slight increase in unharvested acreage and a lower yield in Texas.

A positive development for cotton demand is that U.S. consumer spending on clothing/clothing accessories increased to a record level in June (click to enlarge).

Based on crop conditions at the time of the survey, the decline was a bit surprising. Following the report’s release, the December 2021 futures contract increased to more than 93 cents per pound. The trade likely will be closely monitoring Texas crop conditions over the next month and will be awaiting the September USDA report.

■ What’s the outlook for exports?

Based on available supply, USDA is projecting lower U.S. exports in the 2021-22 marketing year of 15 million bales compared to 16.4 million bales in 2020-21. Ending stocks are estimated to be 3 million bales for the 2021-22 marketing year. U.S. ending stocks only have been under 3 million bales twice in the last decade.

The 2021-22 marketing year began with the lowest level of outstanding sales in five years due to low inventories of higher quality cotton. A further reduction in world ending stocks is projected for the 2021-22 marketing year to 87.2 million bales, which is 4.6 million bales less than last year. Tighter stocks likely will continue to support prices in 2021.