The weekend was full of surprises for the commodity markets. The US Department of Agriculture announced a flurry of revisions to its forecast of world agricultural output for the marketing year 2024-25, also upending its earlier estimates for cotton. If USDA is to be believed, world cotton output is all set to breach 26 million metric tons (MMT) in the ongoing marketing year, climbing to its highest levels in seven years.
If accurate, USDA’s forecast of global cotton output for the ongoing season delivers the highest upward revision for any given month in recent years. World cotton output is now by nearly 2 percent over last month’s forecast, with upward revisions to output across all major producing countries such as China, India, Brazil, USA, and Australia.
Per USDA’s forecast, global cotton production in the marketing year 2024-25 is now set to rise by 6 percent over last year, delivering the highest boost to inventories since the pandemic year 2019-20. Meanwhile, year-end stocks are expected to climb up to 17MMT, taking the stock-to-use ratio to 68 percent, only the second highest level (second only to the Covid year) over the last decade. On the other hand, world consumption is expected to rise only organically, improving by just 1.3 percent despite abundant supplies and weak prices.
The enormous rise in output comes largely on the back of revisions to yields for major producing countries, with average land productivity improving by over 7 percent compared to the previous season, especially in China, India, and Australia, which together account for 55 percent of the aggregate area under cotton cultivation. Brazil and the USA remain significant exceptions, where aggregate land area rose by over 25 percent compared to last year, even as yields slowed down just a tad bit.
Meanwhile – USDA estimates that the rise in domestic production in major processing countries such as China and India will significantly take the pressure off world prices. Global trade is expected to slow down by nearly half a million metric tons or roughly five percent over last year. Although the two export giants – which together account for 55 percent of global trade – are expected to maintain their trade volumes, small exporting countries – especially those of West Africa – are slated to suffer as a result.
World cotton prices, which in 2024 had already declined to their lowest levels since the pandemic year 2020 – may weaken further in the upcoming year, as new stocks from Brazil and the US drive the price down further. The biggest dent to prices is expected to be delivered by China, whose import demand is expected to fall by nearly half from 3.3MMT in 2023-24 to a little over 1.7MMT in the ongoing year, 2024-25. Although cotton consumption in major processing countries such as China, India, Bangladesh, and Vietnam is expected to hold at levels similar to last year, overall consumption in China is still a far cry from peak levels, as strategic de-coupling from China reinforces its hold on global commodity markets.
The biggest surprise to world markets then can only come from a thaw in the US-China trade war, the chances of which happening in 2025 are near zero. Unsurprisingly, Pakistan remains an exception to these trends, turning out to be the only major producing country where output has taken a significant beating, bucking world trends for the fifth consecutive year.
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