U.S. Market Hinges on Strong Export Demand

January 15, 2014

The cotton market remains dominated by a 2013/14 world crop of 117.8 million bales that exceeds use of 109.5 million bales by a surplus of 8.3 million bales. The excess drives world ending stocks to a record 97.6 million carryover stocks. That is nearly a years’ use when 5 months carryover is sufficient, if available.

However, China holds a 60% majority of world stocks that equals a supply of more than 18 months spinning use of cotton. Chinese mills are using a lot more polyester fiber too.

The uncertainty for futures prices and downside price risk between 70 to 80 cents per pound depends on how policymakers in China decide to reduce their surplus stocks. If they decide to substantially reduce buying cotton for import, the demand for U.S. cotton could fall to a futures price below 75 cents after mid-year.

Therefore, it is important to monitor weekly export sales and export shipments. The shipments are the most important. Sales can be cancelled.

The U.S. cotton acreage for 2014/15, at this time, is expected to increase around 5% from the 10.4 million acres planted in the 2013/14 season. Some alternative crop prices are lower than a year ago. Even though cotton price is also lower, dryland cotton acreage in Texas is expected to increase.

Cotton production in the U.S. might increase to around 15.0 million bales for the 2014/15 crop, compared to 13.2 million this season. Meanwhile, the increase in world cotton demand may slow.

The U.S. cotton estimates by USDA in January for the 2013/14 crop were increased 118,000 bales from last month due mainly to an increase for Texas. Exports were raised 100,000 bales to 10.5 million, leaving carryover stocks unchanged at 3.0 million bales. The marketing-year farm price was projected at a range of 72 to 77 cents per pound.

Nearby futures prices trading above 80 cents reflect tight stocks available from the U.S. and other export countries. However, December 2014 futures continue trading below 80 cents, indicating the potential for an increase in available cotton stocks during the 2014/15 crop season.

Cotton growers should carefully evaluate their marketing plans for the 2014/15 season. The market is not likely to hold above 80 cents after planting season provided favorable moisture in Texas.


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