Policy Uncertainty. The last ten years have been a case study in how foreign government policies have influenced the cotton market. Several major examples are India’s domestic minimum support price program, the 2018 U.S. farm bill, the U.S.-China Phase One Agreement, the U.S. Market Facilitation Program, and the U.S. CARES act funding. A more recent example is the Chinese tariffs on Australian cotton imports, and the U.S. sanctions on cotton products from Xinjiang.
The supply question for the ’21 is mostly answered, although that didn’t stop USDA from tinkering with the U.S. old crop cotton production estimate in the May WASDE. Still, I don’t expect more of that.
Demand Uncertainty. For U.S. cotton, the two main demand categories are domestic mill use and exports. Domestic U.S. consumption is estimated by USDA at 2.55 million bales. Exports are generally a more important source of demand as they represent over 85% of projected total use of 2020/21 U.S. cotton. The main indicators of export demand are weekly sales and shipments of U.S. cotton. For the week ending May 26, weekly U.S. net export sales were strong, especially for this late in the year with minimal available supplies. However, the pop in export sales is in keeping with recent lower price levels. The pace of actual export shipments of all cotton (i.e., upland and pima combined) has recovered, hopefully indicating a solution to supply chain disruption.