RECENT PRICE MOVEMENT
Most benchmark prices decreased over the past month.
SUPPLY, DEMAND, & TRADE
This month's USDA report featured slight increases to world production and mill-use.
The global harvest estimate was lifted 585,000 bales (from 105.7 to 106.3 million). The increase at the world-level was primarily a result of larger crop estimates in China (+250,000 bales, from 22.5 to 22.8 million) and Brazil (+200,000 bales, from 6.5 million to 6.7 million) outweighing a decrease in the forecast for Australia (-100,000 bales, from 4.5 to 4.4 million).
The global mill-use figure was increased 161,000 bales, from 112.4 to 112.6 million. At the country-level, the largest revisions included those for Uzbekistan (+150,000 bales, from 1.6 to 1.7 million), Pakistan (+100,000 bales, from 10.2 to 10.3 million), Thailand (+100,000 bales, from 1.2 to 1.3 million), and Bangladesh (-200,000, from 6.7 to 6.5 million).
With the increase in global production larger than the increase in mill-use, world ending stocks are projected to be higher than they were a month ago (+400,000 bales, from 90.5 to 90.9 million). A portion of this additional supply is expected to originate in China (+250,000 bales, from 48.9 to 49.1 million), but estimates for ending stocks were also revised higher in a range of exporting countries, including India (+600,000 bales, from 11.9 to 12.5 million), Brazil (+225,000, from 7.0 to 7.2 million), and Australia (+100,000 bales, from 2.4 to 2.5 million).
These additions to exporter ending stocks are not a result of a decline in projected global trade, with the estimate for global imports mostly unchanged this month (+141,000, 35.9 to 36.1 million), but are instead driven by a loss of market share relative to the U.S. Due to very strong export sales data in recent weeks, the U.S. export forecast was increased 800,000 bales (from 13.2 to 14.0 million). The current projection indicates that shipments from the U.S. in 2016/17 will be the fourth highest on record (14.4 million bales in both 2004/05 and 2010/11, 17.7 million bales in 2005/06) and is a major increase (+52%) relative to last crop year, when U.S. exports totaled only 9.2 million bales.
With this month's addition, the magnitude of the increase in U.S. exports (+4.8 million bales versus 2015/16) currently exceeds the size of this year's large increase in the U.S. harvest (+4.3 million bales versus 2015/16).A decrease in mill-use and an increase in beginning stocks are mitigating factors, but U.S. stocks are now forecast to contract slightly this crop year (-100,000 bales, from 3.8 to 3.7 million bales). This represents a significant change relative to previous USDA estimates. As recently as February, U.S. stocks were projected to increase by one million bales in 2016/17.
Whether or not the U.S. will be able to maintain a high level of exports will be an important factor shaping price direction in the upcoming 2017/18 crop year. The USDA released an updated set of acreage forecasts in the Prospective Plantings Report at the end of March. This report suggested that U.S. cotton acreage will rise by more than 20% for the 2017/18 season. The weather, through its influence on yield and abandonment, will determine the extent to which the expected increase in U.S. planting might correspond to an increase in production. Nonetheless, an increase of planting on this scale suggests that the prospect of a large U.S. harvest is certainly possible next crop year.
The southern hemisphere will be collecting a bigger harvest this summer, which should mean more competition for U.S. exports in coming months. In addition, the tightening of supply on the Indian sub-continent last spring/summer and the currency-related reforms in India that affected the uptake of fiber from Indian farms to traders this season should not be repeated. This may make Indian cotton more of a feature in international markets throughout 2017/18. The degree to which these factors may influence demand for U.S. exports will help determine how large an increase in ending stocks the U.S. may or may not have next crop year. Given the U.S. position as the world's largest exporter, the eventual size of the change in U.S. ending stocks can be expected to influence price direction around the world.