September 17, 2013
The cotton perspective remains dominated by China’s holding 62% of world stocks, but use is 33%. In the rest-of-the-world (ROW), stocks are tight. As a result, the current international market is divided between the policy controlled high cotton price around $1.40 cents per pound in China.
For the ROW countries, the U.S. December ’13 futures price has traded in the mid-eighty cent range. The price over 90 cents for about a week in mid-August appears to have been supported by speculative funds buying for investment purposes.
The downside price risk of the December ’13 futures below 85 cents per pound seems greater than the upside potential above 90 cents. Too, December ’14 futures, since June, have been trading below 80 cents--in the vicinity of 77 to 79 cents. The market is satisfied that the surplus of world cotton can help fulfill demand without higher prices next planting season.
Growers need to consider selling cotton as soon as feasible. If you expect higher prices early next year, then sell cash cotton and use call options on July ‘14 futures instead of paying storage costs.
The record world surplus of 95 million bales represents about a year’s use. The USDA in September increased world 2013/14 production a million bales to 117 million. But, use was lowered slightly to 110 million, leaving 7 million bales excess over use.
In the U.S., September cotton estimates for 2013/14 season included a decrease in production to 12.9 million bales from 13.0 million the month before. Exports were decreased 200,000 bales due to competition mainly from India. The USDA forecast range for producer prices were lowered 3 cents to 69 to 85 cents per pound.
The U.S. export projections have been reduced a substantial 20% from last season. Even so, exports amount to a significant 75% of market for American cotton.
Foreign cotton production for many years fell below use. However, for the last three seasons, foreign production has mostly offset foreign use. As a result, the demand for U.S. export cotton has been reduced.