Market Expectation: According To The Reduction Of Cotton Planting Area In 2023, The International Cotton Price Will Rise

The rise of grain cotton price and the reduction of cotton farmers' income reduced the global cotton planting area in 2023/2024. The economic recovery led to the recovery of cotton textile demand, and the global supply and demand turned to balance. With the further optimization of domestic epidemic prevention policies, the inflection point of demand is gradually emerging under the favorable stimulus, and the cotton price is brewing a slow rising trend. In addition, the clearing of production capacity of some ginning plants and high planting costs also give some support to the panel. It is expected that cotton prices will become stronger in 2023.

In the United States, the price comparison of high grain and cotton will hit cotton farmers' willingness to plant cotton, and the U.S. cotton planting area will decrease in 2023/2024. The La Nina phenomenon is expected to weaken from next spring, and the probability of extreme weather will decrease. The unit yield of American cotton in 2023/2024 may increase, and the total output of American cotton is expected to be the same as that in 2021/2022.

In India, although the purchase price of seed cotton was lower than expected, which led to the reluctance of cotton farmers to sell, the short-term supply pressure of India was small, but this year's Indian cotton production increased and the downstream textile demand decreased. The USDA supply and demand report in December showed that the inventory sales ratio of Indian cotton in 2022/2023 rose to 43.3%, the cotton farmers' income declined, and the cotton planting area of India in 2023/2024 would also decrease.

As the Federal Reserve slows down the pace of interest rate increase, economic recovery will drive the recovery of global cotton textile demand. On the premise of gradually digesting existing stocks, cotton supply and demand will shift to balance in 2023/2024, driving the rise of international cotton prices.

Due to the increase of land rent and fertilizer prices, the cotton planting cost in 2022/2023 will rise, and the climate in Xinjiang will be good during the planting period. The cotton output will increase by 5.8%. The purchase price of Xinjiang cotton will drop from 10-10.5 yuan/kg to 5.5-6 yuan/kg, equivalent to the lint cost of 12000-13000 yuan/ton, and the income of cotton farmers will decline. In order to stabilize grain production, the state plans to expand the cultivation of grain crops. Some cotton fields will be planted with wheat, corn and other crops. It is estimated that the cotton planting area in Xinjiang will decrease in 2023/2024. In addition, some ginning plants were eliminated due to losses, overcapacity was eliminated, and high planting costs may provide support for cotton prices.

In 2022, the cumulative volume of purchase and storage is only 87000 tons, and because of the high commercial inventory of cotton, the purchase and storage measures cannot raise the spot price. With the accelerated progress of new cotton processing and public inspection, the national cotton commercial inventory may reach its peak in the first quarter of 2023. At that time, a new round of collection and storage policies will be introduced, which may play a supporting role for cotton prices.

In 2022, China's cotton import volume will shrink, mainly due to the reduction of overseas cotton production, the reduction of China's import quota distribution, and the poor profit, which will lead to weak market purchasing willingness, and the reversal of domestic and foreign cotton prices. Before the domestic cotton effectively goes to the warehouse, the internal and external cotton prices will continue to hang upside down, and it is difficult to significantly increase the cotton import volume.

In terms of demand, Jiangsu, Zhejiang and other places have organized foreign trade enterprises to go abroad to "grab orders" and actively explore overseas markets outside the United States. It is expected that the domestic demand for textile clothing will recover next year or be ahead of overseas demand. However, in view of the high inventory of finished products, textile enterprises need to digest the inventory before increasing the purchase of raw materials, so the overall demand recovery process is tortuous. It is expected that in 2023, domestic demand will improve significantly ahead of foreign trade. In the first quarter of next year, due to the large number of new cotton coming on the market, there will be greater resistance to the rise of cotton prices. From the second quarter, supply and demand may gradually shift to destocking, driving cotton prices stronger.

To sum up, although the influence of La Nina is weakened and the per unit area yield of cotton is expected to recover, the increase in the grain cotton price ratio and the reduction of cotton farmers' income will reduce the global cotton planting area in 2023/2024. The economic recovery will drive the demand for cotton spinning to rise, and the global supply and demand will turn to balance. The cotton price is brewing a slow rising trend.

It is expected that the cotton price will fluctuate and become stronger in 2023, with the price center moving up to 13000-17000 yuan/ton. Follow up attention will be paid to the impact of weather and epidemic situation changes in the main producing countries on cotton prices.