THE strong demand for cotton has received a lot of attention in global markets throughout 2017-18, hurtling toward an estimated record level of 123 million bales.
This demand side of the equation remains critical to sustaining positive conditions in the global cotton market, but, with profitable prices for producers around the world and a better-performing cotton market relative to competing crops, it is also prudent to keep an eye on supply.
The US Department of Agriculture has forecast global cotton production for next season at just a tick under 122 million bales.
This is a slight decline on the 2017-18 season, but above the 10-year average.
The top four cotton-producing nations – which account for 70 per cent of total production – are all contributing to this continued strength with above-average output forecast in each market.
India surpassed China as the world’s largest producer in 2015-16 and, despite some seasonal and disease concerns, should maintain that place on the podium in the coming season.
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While the majority of India’s circa 29 million bale annual production is consumed domestically, a not-insignificant average of six million bales a year has made its way to global markets in the past 10 years, with Bangladesh currently its largest export market.
The Indian cotton crop will be watched closely for further downside risks relating to yield concerns.
China, a net cotton importer, has seen its own production lift from the decade low recorded in 2015-16 back towards 27.5 million bales in 2017-18 and is forecast by the USDA to remain steady in the coming season.
This has important implications for the volume of cotton required to fill what has been rising mill consumption in China for the past three seasons and falling stocks.
When it comes to export competition, Australia needs to keep a keen eye on the availability of quality cotton in the global market so it is the outlook for continued strong US production and record output in Brazil that is of particular interest.
Rabobank currently forecasts the US crop to reach 19.5 million bales.
Again, although lower than the 2017-18 season, if realised, this will still be the second-largest crop in the past decade, setting the US up for a another very strong export season.
Further south, stronger global prices and, in particular, a weaker Brazilian real have combined with favourable seasonal conditions to drive record cotton output in Brazil during 2017-18.
Rabobank’s Brazilian research team recently reported Brazilian cotton production in the 2017-18 season surpassed 9.2 million bales, some 35 per cent higher than the average for the five years prior.
In addition, positive margins experienced by cotton producers in 2017-18 are set to see a further increase in cotton hectares in Brazil for 2018-19, Rabobank forecasts a lift of 20 per cent in area.
This will see additional cotton become available for export – the USDA has pegged 2018-19 Brazilian exports at a record 5.5 million bales.
For 2018-19, combined forecast exports from the US and Brazil alone are 33 per cent higher than the 10-year average.
While the 2018-19 global cotton season isn’t set to break production records, thanks largely to some tough seasonal conditions in both the US and India, there is still a considerable amount of cotton set to make its way to the international market and strong consumption growth remains ever important to maintain price strength.