Projections from the USDA’s April report show marginally higher worldwide supply and demand, rising by less than 1% each.  World production increased by 832,000 bales to reach 119.7 million bales which was due to projected increases in the United States and India. Global supply increased slightly from 179.9 to 180.9 million bales.  Global consumption rose by a net 457,000 bales to 124.9 million bales on the strength of a higher estimate for Pakistan (+500,000 bales). 

In the United States, there has been an increase in supply from 28.5 to 28.9 million bales and an increase in demand from 19.1 to 19.2 million bales.  USDA’s Planting Intentions Report, released in March, showed total acreage declining by 13.3%.  The largest declines estimated for the states of California (-48.7%), Tennessee (-39.8), and Mississippi (-36.4). The only states projected to increase planted acres were Georgia (+1.9) and Oklahoma (+8.6%). U.S. mill demand increased from 4.6 to 4.7 million bales.  Exports remained flat at 14.5 million bales, which is in line with the average year-to-date pace of shipments seen in previous years. U.S. exports of cotton are expected to be 1.5 million bales higher than last year’s figure. Ending stocks rose from 9.4 million bales to 9.7 million bales, which surpassed March’s record of the highest forecasted level of ending stocks this year. Consequently, the stocks-to-use ratio relaxed to 50.5%, which is consistent with last year’s level and significantly higher than the forecasted ratio just a few months ago.

Prices over the past month started strong but finished approximately six cents (‘A’ Index) and four cents (NY Nearby price) lower than they started the month. The high prices in the early days of March skewed the ‘A’ Index and NY Nearby monthly average prices to seem higher than the markets were really trading by the end of March. Since reaching their peak on March 5th at 87.3 cents (NY Nearby price), prices have slowly eroded in recent weeks to about 73.9 cents (NY Nearby price). 

This weakening in prices was consistent with a return to the fundamentals in the market following a period of heavy influence of the commodity speculators and other commodity prices. Fundamentals still remain soft for the U.S. cotton situation. In January of this year, the forecast for the stocks-to-use ratio was 38.3%. It is now projected to be 50.5%. This change in the ratio reveals a fundamental weakness in the U.S. price structure, while the world stocks-to-use ratio continues to tighten. With the Nearby futures price now trading at approximately four cents per pound below the quote for the ‘A’ Index, U.S. prices appear to be following the direction of the world market more closely.  Even with the announcement of a 13.3% decline in plantings anticipated for the U.S. crop in 2008/2009, U.S. prices have not shown any evidence of strength. This lack of strength gives additional support to the idea that market prices are moving in a direction that reflects the weaker fundamental outlook.