Guotai Haitong: U.S. cotton prices continue to strengthen, demand side catalyzing apparent

Guotai Haitong released a research report stating that ICE No. 2 cotton futures closed at 68.71 cents/pound on March 17, up 6.2% from the beginning of last week and up 7.0% from the average price in Q4 of 2025. The price of American cotton continues to strengthen. On the demand side, catalyzed by increased import quotas for cotton by the National Development and Reform Commission of China and the ongoing negotiations between China and the United States. On the supply side, with reduced production in Brazil and the current drought index in the main cotton-producing areas of the United States at historical highs. Both China and the United States will enter the planting season in April, with weather being one of the key variables affecting short-term market conditions. We will closely monitor the planting situations in the United States and China. We continue to recommend Bros Eastern Co., Ltd (601339.SH) and TEXHONG INTL GP (02678) as beneficiaries of the upward trend in American cotton. Guotai Haitong's main points are as follows: The price of American cotton continues to strengthen, demand side catalysts are evident ICE No. 2 cotton futures closed at 68.71 cents/pound on March 17, up 6.2% from the beginning of last week and up 7.0% from the average price in Q4 of 2025. The main reasons for this are as follows: On March 16, the National Development and Reform Commission announced an increase of 300,000 tons in import quotas for cotton; market reports state that on the first day of bilateral trade negotiations between China and the United States in Paris, Chinese negotiators expressed willingness to increase purchases of products from the United States, including poultry, beef, and non-soybean crops (which likely includes cotton). Compared to the size of the quotas in 2024 and 2025, this increase in import quotas is 100,000 tons larger, and the announcement came much earlier than in past years. This is mainly due to the continuously expanding price difference between domestic and foreign cotton since the beginning of the year. Currently, the price difference between American cotton and Xinjiang cotton has expanded to 6,397 yuan/ton, and the price difference between cotlook A and Xinjiang cotton has expanded to 5,265 yuan/ton. These differences are at the 97.7% and 99.1% percentiles of the past 10 years, and because the additional import quota does not involve an additional 10% tariff on American cotton, American cotton, as the lowest price variety among the main cotton producing countries, has a prominent price advantage in terms of export competitiveness (currently, the spot price for S-6 new cotton from India is 76 cents/pound, and the spot price index for CEPEA-ESALQ cotton in Brazil is 70.09 cents/pound). In February 2026, the United States reached mutual trade agreements with Bangladesh and India, and we will continue to monitor the negotiations between China and the United States In February 2026, the United States established special mechanisms with Bangladesh for the use of American cotton and other raw materials, allowing exports to the United States to enjoy zero tariffs, with quotas linked to US exports of raw materials to Bangladesh; in the agreement with India, India committed to purchasing $500 billion worth of American products over five years and will receive equal textile trade preferences. The combined purchases of American cotton in 2024 are estimated to account for about 9% of US cotton exports. These agreements will encourage both countries to prioritize the use of American cotton, directly benefiting the demand for American cotton exports. It is worth noting that China is the largest buyer of American cotton, with imports in 2024 accounting for nearly 30% of US cotton exports. If further signals of purchases are released during subsequent negotiations, it will resonate with demand in South Asia and inject stronger momentum into American cotton exports. On the supply side, with reduced production in Brazil, we will closely monitor the planting situations in the United States and China As the main cotton-producing country in the Southern Hemisphere, Brazil has completed its planting work for the new season, with Conab estimating a year-on-year decrease of 6.9% in production for 2025/2026. The cotton production in Mato Grosso (which accounts for 70% of Brazil's production) is expected to decrease by 15.16% year-on-year, with a decrease of 8.06% in planting area. Both China and the United States will enter the planting season in April, with weather being one of the key variables affecting short-term market conditions. The drought situation in the main cotton-producing areas of the United States is severe, with drought indexes in states like Texas, Georgia, Arkansas, and Alabama at historically high levels, with Georgia, Arkansas, and Alabama experiencing the most severe conditions in nearly a decade, with extreme drought in Texas accounting for nearly half of the state, and California almost free from drought. Risk warning End-user consumption is below expectations, raw material price fluctuations, and increasing industry competition.