RECENT PRICE MOVEMENT
Most benchmark prices rose slightly in the middle of October before easing in late October and early November. Indian prices declined and Chinese prices were mostly stable.
SUPPLY, DEMAND, & TRADE
Few significant revisions were made in this month's USDA report. The largest updates were for the production. The harvest figure rose 586,000 bales (from 102.7 to 103.3 million). The only important country-level increases to crop numbers were for India (+500,000 bales, to 27.0 million) and the U.S. (+128,000, to 16.2 million).
In terms of mill-use, only marginal updates were made to both global and country-level figures. The forecast for world consumption was lowered 32,000 bales (essentially holding at 112.0 million bales). There were no changes for any countries that were over 100,000 bales.
There were also few changes made to trade projections. India, which is expected to have larger harvest than a month ago is expected to both import and export 300,000 more bales (current import figure is 1.8 million, current export figure is 4.2 million). No other country had an import of export revision of more than 100,000 bales.
Despite the small updates for other statistical categories, the increase to the forecast for world ending stocks was notable. The global figure was lifted by 956,000 bales (to 88.3 million). With small changes to most 2016/17 figures, the larger adjustment to ending stocks was due to revisions to historical figures for stocks in Central Asian nations.
The movement in Indian prices over the past several months has been significant. Back in the spring, spot prices for the popular Shankar-6 variety reached a low of 62 cents/lb (March 23rd). Shortly after, values began rising steadily as it became increasingly apparent that there was not enough cotton in storage in Indian warehouses to meet the needs of Indian mills. Compounding the effect of immediate needs on Indian prices this summer was the outlook for the 2016/17 harvest. Due to more attractive prices for food crops and low yields in certain regions last season, Indian acreage dropped 10-15% for the current crop year. In addition, the monsoon was late, casting doubts on yields and suggesting a small Indian crop for the 2016/17 harvest. All of this fed gains in Indian prices, which rose 50% between their springtime low and their summertime high (92 cents/lb on July 19th).
The purpose of discussing these past events is to highlight how they have reversed. The monsoon arrived in early August and it proved to be exceptional in terms of both the volume and distribution of its rainfall. This generated increasingly optimistic estimates for Indian yields. Despite the 10% reduction in planted acreage, Indian production is projected to be 2% higher than a year ago. Pakistan, which ended up being the largest destination for Indian exports last crop year, has also enjoyed better growing conditions this season. Pakistani yields are projected to be up 38% and the Pakistani harvest is forecast to be 18% larger. As a result, Pakistan will need less cotton from abroad and Pakistani imports are forecast to be 33% lower. The reduction in Pakistan's need for imports this crop year suggests lower demand for Indian exports. Reduced demand for Indian exports, along with the slight increase in Indian production, suggests a partial recovery in Indian stocks should be possible this crop year. That has helped push Indian prices lower. Since early August, Indian sport prices have moved steadily lower, with the most recent values near 72 cents/lb.
All of this is relevant for the rest of the cotton world because India will be looking to the international market to make up for the decline in shipments to Pakistan. Export offers from India are now the cheapest among the 15 offers published by Cotlook that are eligible for inclusion in the average that is the A Index. From a competition standpoint, this has an influence on prices from other exporting countries.As the 2016/17 crop year progresses, competition for exports may increase. This is because India is not the only exporting country projected to have an increase in exportable supply this crop year. Many other exporters are predicted to have meaningful increases in production, including the U.S. (+25%), Australia (+54%), Brazil (+20%), and West Africa (+16%).
Meanwhile, global import demand is forecast to be flat. As was the case a year ago, officials in China recently indicated that only the WTO-related minimum (4.1 million bale) level of quota will be issued for the 2017 calendar year. Bangladeshi imports are forecast to be essentially unchanged (+2%), and after very strong increases over the past five years Vietnamese imports are projected to increase only 10% this crop year (+300,000 bales). Like Pakistan, Turkey is projected to grow more cotton domestically (+21%) and to have less need for imports (-12%).
With more exportable production and stable import demand, a question for the market is how much of the increase in exportable supply will be able to find buyers. As more cotton in exporting countries is harvested, ginned, and made available for shipment, the answer to this question will become increasingly important for price direction.