Despite the effects of Covid-19 on the global economy, cotton prices made some gains over the last month, but with clothing spend down, the outlook for pricing is uncertain, new figures show.
According to a market update by Cotton Incorporated and data from the US Department of Agriculture, most benchmark prices were flat to higher over the past month, with the A Index climbing from 63 to 65 cents/lb.
Indian prices edged slightly lower, easing from 62 to 60 cents/lb, while the China Cotton Index (CC Index 3128B) was comparatively stable near 73 cents/lb. One supportive factor for the market during the pandemic has likely been strong US export sales to China. These have been attributed to purchasing by the Chinese reserve system and are part of the fulfillment of the Phase One agreement.
For 2020/21, the outlook is unclear, but the report adds that already “significant financial damage has been dealt to apparel retailers”.
“Both the US and European Union have also released estimates for consumer spending by category in March. In each location, clothing suffered more than any other set of goods (certain service categories, such as travel, fared worse),” the report notes.
In the US, consumer spending on apparel was down 28% year-over-year. In EU countries, consumer spending on apparel was down 42% year-over-year. In both cases, these were the steepest declines on record, and steeper decreases could be expected in data for April.
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Part of the pullback is due to the unavailability of supply, with brick and mortar stores shuttered, and also demand, with consumers postponing purchases until their outlooks on employment and income improve.
“Once a recovery begins, the question is how strong consumers’ demand might be,” the report adds. “Since it was the first affected and the first to recover, China may provide some guidance.
“Retail sales from China for March and April, however, have not been encouraging with overall spending down around 20% year-over-year in each month. This contrasts sharply with year-over-year growth of near 10% before the outbreak and suggests that consumers everywhere may be conservative in their spending after being shocked by the speed and depth of the Covid-19 crisis.”
USDA estimates for the upcoming crop year in May forecast production will be slightly lower than 2019/20 levels (-3% or -3.7m bales, from 122.7m in 2019/20 to 118.9m in 2020/21).
At the country-level, most of the largest projected year-over-year changes in production are negative. Reductions are anticipated in India (-2m bales, to 28.5m), Brazil (-1.2m bales to 12m), China (-0.8m bales, to 26.5m), the US (-0.4m, to 19.5m), and Mexico (-0.3m, to 1.2m). With an assumption of improved weather, Australia is predicted to have the biggest year-over-year increase (+1.1m bales, to 1.7m).
Global cotton stocks, however, are predicted to remain high. At the end of 2019/20, warehoused supply is projected to reach 97.2m bales. This will be the highest level of carryout since 2014/15, when global stocks hit their record level of 106.7m bales. During this time, China was winding down its stockpiling program, and a significant proportion of global stocks were not freely available to the market.
Under current market conditions, a much greater percentage of global stocks are available for shipment. In 2020/21, ending stocks are forecast to increase again, to 99.4m bales. This volume of available supply can be expected to weigh on prices throughout the 2020/21 season.
Trade is predicted to expand next crop year (+8.9% or +3.5m bales, from 39.3 to 42.8m). In terms of imports, the largest changes include those for China (+2m bales to 9.5m), Vietnam (+0.5m to 7m), and Bangladesh (+0.4m to 7m).