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, the U.S. Market Facilitation Program, and the CARES act funding.
I am not expecting anything 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 2.8 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 has since dropped to sub-par levels. The week ending July 23 saw seasonally strong old crop export net sales, with small cancellations, and weak new crop export sales. Actual export shipments were pretty decent. There remains a discrepancy at the end of the marketing year between cumulative export shipments and USDA’s 2019/20 export forecast. This will have to be resolved either by pending cancellations or rolling forward into 2020/21.
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, May, and June WASDE adjustments to world consumption and exports.