The USDA’s June report describes little change in U.S. and world estimates for the 2007/2008 crop year.  U.S. supply estimates were unchanged from May’s estimate of 28.7 million bales.  Projections for U.S. mill use remained steady at 4.6 million bales while U.S. exports fell 300,000 bales to 13.9 million bales.  The drop in exports was replicated in lower forecasts for demand, decreasing the May estimate from 18.8 million bales to 18.5 million bales, and increased ending stocks 300,000 bales to 10.2 million bales to loosen the stocks-to-use ratio from 52.7% to 55.1%.     

As with the U.S., world projections for 2007/2008 remained relatively flat from May.  World production estimates fell 428,000 bales to 120.0 million bales.  This minor reduction was primarily the result of decreases in production estimates for Pakistan (100,000 bales), the African Franc Zone (100,000 bales), and Greece (75,000 bales).  Though world consumption remained essentially unchanged from May at 124.4 million bales, there was a minor shift in the distribution of consumption as Chinese mill figures were reduced 500,000 bales while estimates were revised upward for India (300,000) and Bangladesh (250,000).   World ending stocks crept up from 61.6 million bales to 61.8 million bales and loosened the world stocks-to-use ratio from 49.5% to 49.7%.

Due to continuing softness in both U.S. and global fundamentals, both NY Nearby and ‘A’ Index cotton prices weakened over the last month. 

The USDA projects tighter fundamentals as we enter the 2008/2009 marketing year, June’s estimate of a 12% reduction in world inventories is two percentage points higher than May’s forecast. Lower global stocks are predicted to result from a 3.0% decrease in world production coupled with a 2.3% increase in world consumption.  Leading this change on the demand side are projections that China’s consumption will reach an all time high of 55.0 million bales.

The world stocks-to-use ratio is projected to fall to 42.5%, resulting in stronger fundamentals, and should provide support for those who believe that prices may move higher as the new marketing year begins.  Key variables affecting this outlook continue to be (1) the production estimates for cotton in India and China and (2) whether or not the economic slowdown experienced in the U.S. consumer market begins to affect other large consumer markets. Weaker production estimates will almost certainly weigh in on world prices by providing some strength; yet, this bullish effect could be moderated by a weakening consumer outlook leading to lower forecasts for world mill consumption.