The Cotlook A Index price is expected to remain near the upper end of prices during the previous five years

The Cotlook A Index price is expected to remain near the upper end of prices during the previous five years

World cotton trade is expected to increase for the third consecutive season in 2018/19 – reaching its highest level for six years – thanks to growing demand from mills in non-producing countries like Bangladesh and Vietnam and a rebound in China's cotton spinning.

The latest projections from the US Department of Agriculture (USDA) point to a nearly 2% rise in global cotton trade in 2018/19 from last season. World trade is seen at 41.7m bales in 2018/19 – 700,000 bales above last season – but still 4.7m bales below the record set six years ago in 2012/13.

As well as rising demand in Bangladesh and Vietnam, imports are also expected to increase once again this season into China, a major producer and spinner of cotton.

This import demand is satisfied by a number of producing/exporting countries, with strong export prospects seen for the United States despite a reduction from 2017/18. Similarly, exports from India and Australia are forecast lower with reduced production prospects. Meanwhile, exports from Brazil are set to expand considerably as rising production over the past several seasons increases exportable supplies.

US cotton production revised slightly in December

According to USDA's December Crop Production report, 2018 US cotton production is estimated at nearly 18.6m bales, a drop of 11% or 2.3m bales below the 2017 crop. Planted and harvested area this season are estimated at 14.0m and 10.4m acres, respectively; with detrimental weather conditions in the Southwest and Southeast this season pushing the national abandonment rate to 26%, the highest in 5 years.

Projected 2018/19 demand for US cotton was unchanged in December at 18.3m bales; exports are forecast at 15.0m bales, and mill use remains at 3.3m bales.

Although this season's US cotton export estimate is 850,000 bales below the final 2017/18 estimate, US cotton is projected to remain relatively competitive on the global market.

Based on the current global cotton trade estimate, the 2018/19 US share of world trade is forecast at 36%, down slightly from the previous two years due to higher expected exports from Brazil.

With US demand unchanged from November, the production increase this month raised the 2018/19 ending stocks estimate by 100,000 bales to 4.4m bales. Although the stocks would be the highest since 2008/09, the more relevant stocks-to-use ratio is only slightly above last season's level, the USDA says.

International outlook

World cotton production in 2018/19 is seen at 118.7m bales, 4% below last season, as a reduction in area and yield expectations both contribute to the decrease.

Cotton production is expected to decline for each of the top producers, except for Brazil. For India – the world's largest producer – production is likely to reach 27.5m bales this season, 5% below 2017/18, with a shortage of moisture in cotton-producing regions reducing yield.

For China, 2018/19 cotton production is projected at 27.0m bales, 2% lower than a year earlier, with both harvested area and yield forecast down.

Pakistan's production in 2018/19 is forecast at 7.4m bales, 10% below 2017/18 and the smallest crop there in three years. An 11-percent reduction in area is largely responsible for this season's decline. For Australia, lower area and yield are reducing the crop by nearly 50% to 2.5 million bales, the lowest in four years.

In contrast, cotton production in Brazil is forecast to reach 11.0m bales in 2018/19, a jump of 19% above last season. Excellent growing conditions, in addition to favourable prices, are expected to push plantings to 1.4m hectares, the highest since a similar amount was harvested in 2011/12.

World mill use growth

Global cotton consumption in 2018/19 is projected to rise 2% to a record 125.6m bales. While the growth rate is near the long-term average, it follows last season's extraordinary growth of 6% that was supported by an improved global economic outlook and a rebound in China's cotton spinning.

For 2017/18, China's cotton mill use is estimated at 41.0m bales – a growth of 6.5% – and for 2018/19, it is forecast at 41.5m bales, the highest since 2010/11, but only 1.2% above the year before. China is the leading spinner of raw cotton and the largest supplier of textile and apparel products to the world.

India, Bangladesh, and Vietnam are forecast to increase their respective cotton mill use levels to new records in 2018/19 as textile expansion follows the global economy.

For India, mill use is projected at 25.3m bales, up more than 2%. Bangladesh's mill use is forecast to reach 8.0m bales in 2018/19, or nearly 7% above last season. Mill use growth near 14% in Vietnam is expected to expand cotton use there to 7.5m bales in 2018/19.

In contrast, cotton mill use in Pakistan and Turkey are forecast to experience declines of 2% and 5%, respectively, with mill use estimated at 10.6m bales and 7.0m bales, respectively.

Global cotton stocks to decline

World cotton stocks are forecast at 73.2m bales at the end of 2018/19, compared with 80.4m bales last season and a record 106.9m bales in 2014/15.

Global stocks are expected to fall in a number of countries this season but will be led once again by China's reduction. Cotton ending stocks for 2018/19 in China are estimated at nearly 30.4m bales, a 20% reduction from last season. Even though China continues to draw down its surplus reserve stocks, it is still expected to hold over 40% of the global total at season's end.

Stock declines are also seen for India and Pakistan. For India, stocks are likely to be down by 600,000 bales to about 8.1m bales; while in Pakistan, cotton stocks are forecast to fall nearly 500,000 bales to 2.4m bales, largely the result of a smaller crop.

In contrast, stocks in the United States and Brazil are expected higher, with Brazil's ending stocks climbing 20% by 31 July 2019 to 10.4m bales – making it the second largest stockholder, accounting for 14% of the global cotton stocks this season.

Although global cotton stocks are expected to reach their lowest level since 2011/12 and the stocks-to-use ratio is at an 8-year low, stocks outside of China in 2018/19 are forecast to increase year over year.

Consequently, the Cotlook A Index price is expected to drop slightly from 2017/18's 88-cent average but remain near the upper end of prices during the previous five years.