Covid-19 has dramatically impacted nearly every sector of the global economy, and the cotton sector is no exception. Comparing the February 2020 USDA forecasts for 2019/20 and 2020/21 with December’s forecasts provides an overview of the impact.
The February 2020 USDA forecast for world use in 2020/21 was 121 million bales, up 1.7% from the 2019/20 forecast that same month. As the extent of the Covid-19 impacts became clearer, the 2020/21 world use forecast was slashed. However, as components of the world economy have recovered, use has edged up in recent months and is now only 3% below February.
The forecast for world use in 2019/20 fell 14% between the February and December forecasts as spinning mills dramatically reduced operations. While the onset of Covid-19 impacts varied by country, forecast 2019/20 mill use was reduced in all major spinning countries. Monthly use fell by around 90% in the United States, China, Pakistan, and India from the previous year at its worst in the year.
The pandemic’s timing has limited its impact on cotton lint production; for example, the 2019/20 crop was already harvested in most Northern Hemisphere countries and well developed in the rest of the world. In addition, there has been remarkably little impact on 2020 plantings outside of West Africa: the 2020/21 crop forecast has largely been driven by weather and pest concerns, with lower production in Pakistan, the United States, Greece, Mali, and Turkey.
With global use forecast down, and production largely unaffected, 2020/21 ending stocks are forecast higher at 97.5 million bales, 19% (15.4 million bales) above the February Outlook. Prices, which had been trending up before the pandemic, retreated sharply from January to April, with the NY futures falling to a 10-year low. However, prices have rallied and now exceed pre-pandemic levels as mill use recovers and other factors support the recent strength.
The reduction in world use is comparable to those experienced in the Global Financial Crisis (GFC) of 2007/08 and cotton price shock of 2010. However, there are differences. The GFC developed much more slowly, and as a result production responded to lower prices and global stocks did not experience a large build-up. The price shock of 2010 resulted in a large production response, which, coupled with the decline in demand, resulted in an even larger build-up of global stocks than is seen thus far in the pandemic. As with these previous shocks, it will likely take several years for the global cotton sector to fully recover from the pandemic.
The November forecast shows higher use with lower production and ending stocks. Sharply lower production in Pakistan, India, and Australia is partially offset by an increase in Turkmenistan. Consumption is raised in India, China, and Pakistan and lowered in Thailand. Global trade is up slightly led by Bangladesh and Thailand. The US forecast shows sharply lower production and higher exports. The US season-average farm price is raised 1 cent to 65 cents per pound.
Both the A-index and US spot price have continued to rise slowly as old crop supplies tighten and on concerns about the quality of new US cotton crop.