Weak China Demand Affects Cotton Consumption

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For 2019/20, USDA’s February forecast shows higher production and beginning stocks. Production is raised for Brazil, Chad, and Tajikistan. Consumption is lowered due to weaker demand in China. Global trade is up slightly with higher imports by Turkey coupled with higher exports from Chad.

The US forecast this month shows lower production and ending stocks and the US season-average farm price is lowered 2 cents to 60 cents per pound.

Prices
The A-index and US spot price have continued their downward momentum from last month and are 11 cents lower compared with this time last year. Concerns over the COVID-19 outbreak have depressed demand and slowed global business activity, while the US-China trade situation continues to restrain market sentiment.

Change in methodology
US cotton exports reported by the US Census Bureau have exceeded shipments data from USDA’s Export Sales Reporting (ESR) for the first half of the 2019/20 marketing year, repeating the historical trend for each of the past six years. USDA has historically used ESR data as the basis for its end-of-year exports estimate; however, end-of-year adjustments to the U.S. balance sheet in September 2019 changed this approach. With this adjustment, USDA averaged ESR and US Census Bureau exports to compute the final export estimate for both the 2017/18 and 2018/19 marketing years; Census exports exceeded ESR by more than 5% for each of the respective marketing years. The change in USDA methodology reflects a growing and significant divergence between both export data sources.

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For the first six months of 2019/20, Census data exceeded ESR by more than 600,000 bales (11%). US 2019/20 exports are forecast at their highest level in 14 years, driven by the highest projected global imports in seven years and robust US exportable supplies. A larger forecast may imply an even larger discrepancy than the previous year between ESR and Census, which exceeded 1 million bales. Exports to Vietnam have witnessed the highest discrepancy to date for 2019/20 at more than 200,000 bales, with the top three US markets (according to ESR data) all differing by more than 100,000 bales.

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USDA utilises various data sources to estimate production, imports, consumption, exports, and ending stocks for the US balance sheet. Using ESR export data as the basis for both the 2017/18 and 2018/19 marketing years would have indicated an unprecedented loss (or residual). This led to the conclusion that exports would be more accurately estimated using both sources of export data when considering the accuracy of data driving other components of the balance sheet.

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With regard to justifying the discrepancy between both export data sources, lower reported ESR exports may be due to the following: exporters failing to report sales, an unclear understanding of reporting procedures, unregistered exporters in the ESR database, and/or incorrect submissions and human error.

USDA plans to continue monitoring the discrepancy when forecasting and ultimately assessing final 2019/20 exports.

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