India’s 2021/22 consumption is forecast at a record 25.5 million bales and exports are projected at the second-highest level in 8 years at 5.8 million. This level of total use is forecast to lower ending stocks to 12.4 million bales, down nearly 4.0 million compared with the record level 2 years prior.
A robust recovery from the COVID-19 pandemic and stronger domestic consumption and exports of cotton yarn, fabric, and products are projected to support a significant downfall in stocks.
Stock levels nearly doubled to a record 2 years ago primarily due to the following factors. First, production soared 3.0 million bales while consumption fell over 4.0 million. Second, India’s seed cotton prices fell below the Minimum Support Price (MSP), which drove record state purchases and storage of cotton lint in CY 2020 by the Cotton Corporation of India (CCI).
Yet, the CCI’s record stock levels quickly fell with record sales in 2020/21. Mills and exporters were eager buyers, with 2020/21 domestic consumption rising 4.0 million bales and exports at their highest in 7 years at 6.2 million. India’s projected record consumption in 2021/22 is driven by the expected strong gross domestic product (GDP) growth as well as rising textile exports.
The International Monetary Fund’s October Update projected India’s GDP growth at 9.5 percent in 2021 and 8.5 in 2022, which is expected to support domestic consumption of cotton textiles and garments. World GDP growth projections of 5.9 percent in 2021 and 4.9 percent in 2022 are expected to support exports of cotton lint, yarn, fabric, garments, and home furnishings.
CCI is not expected to purchase a significant quantity of domestic cotton in 2021/22, due to spot prices exceeding the MSP procurement price (5,762 rupee per 100 kgs of seed cotton). Fewer government purchases and less storage coupled with the second-highest level of total offtake (consumption plus exports) are expected to prevent stocks from ballooning back to historically high levels.
Global production is raised with larger crops in Pakistan and Turkey more than offsetting lower crops in the United States and India. Use is lowered with consumption falling in China and Vietnam, more than offsetting higher consumption in Pakistan and Turkey.
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Restrictions on China’s electricity use and COVID- 19 restrictions in Vietnam (August through September) result in lower projections for consumption. Global trade is down on lower imports for Pakistan and Vietnam more than offsetting greater China demand. Exports are lowered for India and Brazil, with the former having significantly lower supplies compared with last month.
U.S. production is lowered 0.5 million bales to 18.0 million. Exports and use are unchanged, with ending stocks down to 3.2 million bales. The U.S. season-average farm price is raised 6 cents to 90 cents per pound.
The A-index and U.S. spot price were higher for the fifth consecutive month in September and the monthly average for the A-Index continued at a 10-year high. Global prices initially dipped during the first half of the month, mostly due to global macroeconomic concerns.
However, the December contract’s prices on the Intercontinental Exchange (ICE) surged over 16 cents to 106 cents per pound by September 30, compared with 89 cents just 10 days prior. The surge of speculative (i.e., noncommercial) buying has mostly been attributed to higher prices, however, fundamental factors have also contributed.
Robust reported U.S. sales to China in September (rumored for the State Reserve) further constrained supplies amid ongoing logistical issues, further driving up the December contract. All cotton put up for sale in September by China’s State Reserve sold out for the third consecutive month, signifying robust demand for nearby supplies.
In contrast to past programs, State Reserve sales have been continued through November.