NY cotton futures move slightly higher over holiday period

However, as we have learned over the past three seasons, world prices pay relatively little attention to the global balance sheet, since they have held firm despite a near doubling of global stocks from 50.2 to 96.4 million bales. The reason for this is that the entire inventory increase occurred in China, while ROW (rest of the world) stocks actually declined by half a million bales, going from 39.6 to 39.1 million bales.

Thanks to its generous stockpiling program, China has absorbed the entire production surplus in the ROW over the last three seasons by importing a lot more cotton than it needed, which in turn has kept world prices well supported. This is likely going to change under the new policy!

China is now switching from accumulating stocks to reducing them over the next 3-5 years. This will result in fewer imports, even if China’s output gap were to increase due to the expected drop in production. Therefore, if China were to import only 2.0 to 2.5 million tons next season, while the ROW produced a surplus of let’s say 3.0 million tons, then stocks in the ROW would start to rise and put pressure on prices.

Plexus