Policy Uncertainty. The last seven 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 trade war, and the U.S. Market Facilitation Program.
I am not expected much in the way of further adjustments to 2019 production.
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 2.9 million bales. Exports are generally a more important source of demand as they represent over 80% of projected total use of 2019/20 U.S. cotton. The main indicators of export demand are weekly sales and shipments of U.S. cotton. The pace of actual export shipments of all cotton (i.e., upland and pima combined) has been strong in March and April, but the fear is that it may drop off due to supply chain disruption from the COVID-19 pandemic. The week ending May 21 saw relatively weak old crop export net sales, with modest levels of new sales being offset by cancellations. I think this reflects both the increasingly late time of the marketing year and the generally weak and uncertain demand picture.
It is an open question how the demand destruction from shuttered businesses and sheltering consumer will affect the cotton supply chain. USDA has only started to account for the likely reduction in world cotton consumption with the April and May WASDE adjustments to world consumption and exports.