August 19, 2014
December ’14 futures prices have managed to stay mostly above 62 cents per pound in the first two weeks of August, despite the large cotton supply forecast by USDA in the August supply/demand report. U.S. all cotton production was raised to 17.5 million bales in the first survey based estimate of the U.S. crop. Partially offsetting the increased crop was a 500,000 bale boost in estimated exports to 10.7 million bales.
However, U.S. carryover stocks for the 2014 crop are now forecast at 5.6 million bales, or 39% of total use. That is the largest stocks-to-use since 2007/08. Thus, USDA lowered the forecast range for the 2014/15 marketing year average price received by producers to 58 to 72 cents.
For 2014/15, worldwide production was raised slightly as was consumption. Lower prices are expected to improve cotton’s share of textile fiber use. Also, world minus China ending stocks are expected to increase around 4 million bales from the 2013/14 season.
A bright spot for the U.S. export market is that foreign mill use is up 8.7 million bales above foreign production. Too, U.S. cotton quality is good and importers are seeking the better cotton qualities above base grade of 41-34 quality.
It appears that December ’14 futures prices will trade in the 62 to 68 cent range during August and September. Cotton priced in the mid-sixty cent range is more competitive with polyester prices. Typically, when the new crop cotton supply increases from the year before, the market drops sharply ahead of harvest and then slowly trades a little higher as the harvest season progresses.
Although the Texas crop is better than last year, much of the topsoil and subsoil is too dry. August rains in West Texas have fallen a little short of needed moisture to fully mature the late planted dryland cotton.
The West Texas dryland crop is off to a late start and needs timely rain and warm temperatures. The Central and South Texas crops are doing well and harvest is underway.
The 2014 Texas upland crop is expected to total around 7.1 million bales, 70% larger than in 2013. Harvested acreage is estimated at 5.4 million acres, up 74% from 2013. The U.S. upland cotton crop is expected to total 16.9 million bales, 38% more than last year. Thus, the Texas crop will amount to about 42% of the U.S. upland production.
Growers that have not priced their cotton or placed it in a market pool or association will have few opportunities to market their cotton in the next several months. Some growers may decide to use the Commodity Credit Corporation (CCC) loan program. They need to compare cost of loan program and storage to May or July call option premiums.