What Will Happen To The Cotton Market When The Epidemic Subsidise?

In the past month, the ICE cotton futures contract in May dropped from 61 cents to 53 cents, and the trail A index dropped from 72 cents to 64 cents. Cotton prices in India dropped from 63 cents to 67 cents, and cotton prices in Pakistan dropped from 70 cents to 64 cents.

According to the US Department of agriculture forecast in April, global cotton consumption fell by 7 million 600 thousand packages, to 110 million 600 thousand packs, the lowest since 2013/14. Consumption in India, China, Pakistan, Bangladesh, Turkey, Uzbekistan, Brazil, Mexico, the United States and Thailand has been reduced to varying degrees. In view of the fact that the new crown outbreak may occur again after the initial containment and the severe economic impact caused by the discontinued production around the world, the global cotton consumption may be further reduced in the future. Due to the sharp decrease in global consumption and a slight increase in output, the global end of the month inventory ratio increased by 7 million 900 thousand packs to 91 million 300 thousand packs, the highest since 2014/15.

From the price trend, the common strategy of enterprises is to reduce expenditure and guarantee cash flow. This may mean that when the final recovery comes, the inventory of textile supply chain will be very low. After the 2008/09 financial crisis, with the improvement of the economic environment, the low inventory and demand surges of manufacturers and retailers also appeared, leading to soaring cotton prices in 2010/11. The market is still in the early stage of inventory reduction. After the extinction of the epidemic and the recovery of business activity, the supply chain emptying may trigger a surge in demand.

However, unlike the previous global recovery, cotton supply should be sufficient after the recovery of the market. The US Department of agriculture will announce its first forecast for 2020/21 next month. The US Department of Agriculture announced in the end of March that there was little change in the planting area for the United States. If other major producers maintain a similar pattern in 2020/21, there will be a substantial surplus in the next year, coupled with a high final inventory this year.

It should be noted that the cost of garment procurement may increase significantly after the crisis has subsided. The reason may be that manufacturers and purchasers compete with each other for the completion of orders, but at the same time, because of the severe economic recession, the number of manufacturers who can take orders in the later stage may be reduced. It is not clear what support measures Asian countries can provide for textiles. Many manufacturers may be forced to shut down. If closure is widespread, the capacity of the global manufacturing industry may take several years to rebuild.