Don Shurley, University of Georgia
The past few weeks have not been kind to cotton. Prices (Dec15 futures) have broken down through that important “trend of increasing support” line and have threatened to move lower. Some analysts believe we are headed to the upper 50’s but, thus far cotton has fallen mightily but is trying to hold on. Today’s USDA numbers may act like the referee stepping in to stop the damage just in time.
Cotton has been hit by a barrage of negative news lately and one has to wonder how much longer prices can hang on. The January low close at 61.50 has been threatened. If prices can manage to stay above this January low, it will be a positive sign to say the least. Breaking through this “floor” could really get the bears roaring and send us even lower. Today’s numbers don’t solve all of cotton’s ills but it may keep the roaring bears at bay for now. The way is this market has been going, we take all the help we can get.
I have long said that one cure for falling prices is buying. It is thought that this move lower, now and if/when it happens again, may result in increased buying/exports. Perhaps that will provide the new support needed to keep prices from moving even lower and eventually push prices a bit higher.
Prices will be driven by US crop conditions and outlook, China and global economic concerns, and exports. Today’s USDA production and supply/demand numbers are a shock and largely unexpected and should provide some boost and support for prices, even if it may end up to be short-lived. Dec15 is up almost 300 points (almost 3 cents/lb) on the news.
USDA’s August estimates, released today, are the first numbers for the new crop year based on actual producer survey. The US crop is now estimated at 13.08 million bales—down from the previous estimate of 14.5 million bales. Most expected the crop to be larger, not smaller than 14.5.
US acreage planted was reduced from 9.0 to 8.9 million acres and more importantly, acres to be harvested was dropped 610K acres. Average yield is expected to be 795 lbs/acre—down from 819 lbs in the July estimate.
As expected, exports from the 2014 crop year were increased another 200K bales. There was a 100K bale reduction in the 2014 crop year beginning stocks and a 200K bales increase in the “unaccounted” number—so, in a bit of a surprise, US beginning stocks on hand going in to this 2015 crop year were lowered a rather significant ½ million bales.
This ½ million bale decline plus the reduced US new crop estimate, cuts total available US supply by almost 2 million bales. But not all was good for prices—expected exports for the 2015 crop year were lowered 800K bales. This reflects less available supply and concerns about China and their need for imports. The US average price of cotton for the 2015 crop was increased from 62 cents (a range of 54 to 70 cents) to 65 cents (a range of 58 to 72 cents).
The expected 2015 China crop was reduced; India was reduced. Total World production is now estimated at 109 million bales—down about 2½ million bales from the July estimate. World usage is estimated at 114.65 million bales—up slightly from July despite a ½ million bale reduction in China’s expected use. World 2015-16 projected ending stocks were reduced 3 million bales—China down ½ million bales from the July estimate.
There’s something inconsistent about recent slide in prices and the increase in expected price range for this year’s crop. Today’s numbers, judging strictly by the market’s reaction today, should provide some breathing room and a little relief from the bearish pressures—but there are still many unknowns and pitfalls. There are growing concerns about China’s economy and this week the People’s Bank of China decided to devalue the Yuan.
For now, these numbers are like the referee stepping in and getting cotton off the ropes. But the fight continues. As we progress to harvest, prices will depend on any further revisions in the US and foreign crops and the prospect for exports. Premiums for fiber quality are still expected to be good.
Don Shurley, University of Georgia
229-386-3512 / donshur@uga.edu
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