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Recent price movement
Movement in benchmark prices was mixed over the past month.
？ The NY December contract has traded between 58 and 63 cents/lb since early September. Although resistance near 63 cents/lb sent values lower in the middle of last month， a gentle upward trend has been in place over the past several weeks.
？ The A Index has been testing the upper end of the past month’s trading range （70-72 cents/lb）.
？ In international terms， the China Cotton Index （CC Index 3128B） decreased from 83 to 80 cents/lb between early September and the present. Over the same period， the RMB was nearly unchanged against the USD （near 7.13 RMB/USD）.
？ Indian cotton prices （Shankar-6 quality） held to values near 75 cents/lb in international terms over the past month. In domestic terms， Indian prices were relatively stable at levels between 41，600 and 42，000 INR/candy. Since early September， the INR has been steady against the USD at levels near 71 INR/USD.
？ Pakistani prices increased from 63 to 68 cents/lb in international terms and from 8，100 to 8，700 PKR/maund in domestic terms. The PKR was stable against the dollar over the past month， near 156 PKR/USD.
Supply， demand， & trade
The latest USDA report featured small reductions to global production（-127，000 bales to 124.8 million） and mill-use forecasts （-135，000 bales to 121.6 million）. With these revisions nearly offsetting， the projection for world ending stocks was virtually unchanged （-56，000 bales to 83.7 million）.
At the country-level， there were significant revisions to production numbers. The largest changes were for India （+1.0 million bales to 30.5 million）， Brazil （-400，000 to 11.6 million）， Pakistan （-400，000 to 7.6 million）， Australia （-200，000 to 1.2 million）， and the U.S. （-157，000 to 21.7 million bales）.
For mill-use， the largest changes were for Turkey （+100，000 bales to 6.9 million） and Vietnam （-100，000 to 7.4 million）.
The global trade forecast was lowered 380，000 bales to 42.9 million. In terms of exports， the largest revisions were for Australia （-200，000 bales to 1.7 million） and Brazil （-200，000 to 8.3 million）. In terms of imports， the largest revisions were for China （-500，000 bales to 9.5 million）， Pakistan（+200，000 to 3.1 million）， Vietnam（-100，000 to 7.5 million）， and Turkey（+100，000 to 3.2 million）.
Price outlook
With the end of September， the Chinese government concluded the 2019 set of auctions from reserve supply that began in early May. At the onset， the Chinese government announced it had prepared about one million tons （4.6 million bales） for sale. By the conclusion， the Chinese government had sold about one million tons. The 2019 round of auctions was one of a series of major sales conducted since reforms were announced by the Chinese government in 2014. These reforms were designed to reduce the volume of cotton the government had accumulated in wake of the 2010/11 price spike. Since then， auctions have moved a tremendous amount of cotton. At their peak in the spring of 2014， Chinese reserves were estimated to be around 60 million bales. Following this year’s sales， the volume estimated to be currently held by the Chinese government is near 9 million bales.
The current volume represents only three months of Chinese mill-use and is below the USDA forecast for the 2019/20 Chinese production deficit （11.8 million bales）. This implies that the ability for China to further drawdown stocks is limited， and that stabilization of Chinese reserve stocks is forthcoming.
Stabilization of Chinese stocks implies that Chinese imports match the size of China’s production gap. With Chinese imports near five million bales during most of the period when reserves were being drawn down， and with China’s current production deficit averaging nearly 14 million bales over the past four crop years， this signals a strong increase in Chinese imports. The transition towards higher levels of imports has already begun， with China’s imports in 2018/19 up 69% relative to 2017/18.
For the outlook for Chinese imports in 2019/20， it should be remembered that Chinese stocks are not just Chinese reserves. China also has private inventories maintained by mills and traders. Those private inventories（which can be approximated by the difference between USDA’s figure for Chinese reserve stocks） are higher than one year ago and the USDA’s forecasts that these supplies will inhibit growth in Chinese import demand this crop year.
Another point to remember for China’s imports in 2019/20 is that the Chinese reserve system can also import cotton. With reserves drawn down， the Chinese government may choose to rebuild reserve supplies with foreign cotton. Any cotton imported to rebuild reserves would be added to the volume required to feed Chinese mills （i.e.， fill the production gap）.
What happens with Chinese imports is relevant to the rest of the world because of China’s dominant position on the demand side of the global balance sheet. Along with projections for larger harvests in several major exporting countries （e.g.， the U.S. and India）， the USDA’s forecast for muted growth in Chinese imports in 2019/20 drives expectations of a significant build-up in exporter stocks this crop year. This has been a factor weighing on prices， and the extent to which that projection proves correct can be expected to continue to shape price direction.
Movement in benchmark prices was mixed over the past month.
？ The NY December contract has traded between 58 and 63 cents/lb since early September. Although resistance near 63 cents/lb sent values lower in the middle of last month， a gentle upward trend has been in place over the past several weeks.
？ The A Index has been testing the upper end of the past month’s trading range （70-72 cents/lb）.
？ In international terms， the China Cotton Index （CC Index 3128B） decreased from 83 to 80 cents/lb between early September and the present. Over the same period， the RMB was nearly unchanged against the USD （near 7.13 RMB/USD）.
？ Indian cotton prices （Shankar-6 quality） held to values near 75 cents/lb in international terms over the past month. In domestic terms， Indian prices were relatively stable at levels between 41，600 and 42，000 INR/candy. Since early September， the INR has been steady against the USD at levels near 71 INR/USD.
？ Pakistani prices increased from 63 to 68 cents/lb in international terms and from 8，100 to 8，700 PKR/maund in domestic terms. The PKR was stable against the dollar over the past month， near 156 PKR/USD.
Supply， demand， & trade
The latest USDA report featured small reductions to global production（-127，000 bales to 124.8 million） and mill-use forecasts （-135，000 bales to 121.6 million）. With these revisions nearly offsetting， the projection for world ending stocks was virtually unchanged （-56，000 bales to 83.7 million）.
At the country-level， there were significant revisions to production numbers. The largest changes were for India （+1.0 million bales to 30.5 million）， Brazil （-400，000 to 11.6 million）， Pakistan （-400，000 to 7.6 million）， Australia （-200，000 to 1.2 million）， and the U.S. （-157，000 to 21.7 million bales）.
For mill-use， the largest changes were for Turkey （+100，000 bales to 6.9 million） and Vietnam （-100，000 to 7.4 million）.
The global trade forecast was lowered 380，000 bales to 42.9 million. In terms of exports， the largest revisions were for Australia （-200，000 bales to 1.7 million） and Brazil （-200，000 to 8.3 million）. In terms of imports， the largest revisions were for China （-500，000 bales to 9.5 million）， Pakistan（+200，000 to 3.1 million）， Vietnam（-100，000 to 7.5 million）， and Turkey（+100，000 to 3.2 million）.
Price outlook
With the end of September， the Chinese government concluded the 2019 set of auctions from reserve supply that began in early May. At the onset， the Chinese government announced it had prepared about one million tons （4.6 million bales） for sale. By the conclusion， the Chinese government had sold about one million tons. The 2019 round of auctions was one of a series of major sales conducted since reforms were announced by the Chinese government in 2014. These reforms were designed to reduce the volume of cotton the government had accumulated in wake of the 2010/11 price spike. Since then， auctions have moved a tremendous amount of cotton. At their peak in the spring of 2014， Chinese reserves were estimated to be around 60 million bales. Following this year’s sales， the volume estimated to be currently held by the Chinese government is near 9 million bales.
The current volume represents only three months of Chinese mill-use and is below the USDA forecast for the 2019/20 Chinese production deficit （11.8 million bales）. This implies that the ability for China to further drawdown stocks is limited， and that stabilization of Chinese reserve stocks is forthcoming.
Stabilization of Chinese stocks implies that Chinese imports match the size of China’s production gap. With Chinese imports near five million bales during most of the period when reserves were being drawn down， and with China’s current production deficit averaging nearly 14 million bales over the past four crop years， this signals a strong increase in Chinese imports. The transition towards higher levels of imports has already begun， with China’s imports in 2018/19 up 69% relative to 2017/18.
For the outlook for Chinese imports in 2019/20， it should be remembered that Chinese stocks are not just Chinese reserves. China also has private inventories maintained by mills and traders. Those private inventories（which can be approximated by the difference between USDA’s figure for Chinese reserve stocks） are higher than one year ago and the USDA’s forecasts that these supplies will inhibit growth in Chinese import demand this crop year.
Another point to remember for China’s imports in 2019/20 is that the Chinese reserve system can also import cotton. With reserves drawn down， the Chinese government may choose to rebuild reserve supplies with foreign cotton. Any cotton imported to rebuild reserves would be added to the volume required to feed Chinese mills （i.e.， fill the production gap）.
What happens with Chinese imports is relevant to the rest of the world because of China’s dominant position on the demand side of the global balance sheet. Along with projections for larger harvests in several major exporting countries （e.g.， the U.S. and India）， the USDA’s forecast for muted growth in Chinese imports in 2019/20 drives expectations of a significant build-up in exporter stocks this crop year. This has been a factor weighing on prices， and the extent to which that projection proves correct can be expected to continue to shape price direction.