December 13, 2013
The December USDA supply/demand forecast was basically neutral. World cotton supplies still stand at a surplus of 88% of use.
That is too much cotton fundamentally for prices to move much higher than around 85 cents per pound. If cotton from China becomes available, there is enough cotton to drive prices toward 70 cents over the next several months. The price movements depend mostly on what China does with their huge stockpile of cotton.
World production of 117 million bales is almost 7 million bales, or 6%, more than use. The surplus production is hanging over the market. Therefore, downside price movement appears greater than upside potential.
U.S. domestic use and export estimates remained the same as last month. That leaves carryover stocks fairly tight at 3.0 million bales, compared to 3.9 million a year ago. The estimated price received by growers was left by USDA in the 70-78 cent per pound range for the 2013/14 season ending August 1.
The forecast of 13.1 million bales for the 2013/14 U.S. crop changed little. However, it is much smaller than the 17.3 million bales produced in 2012/13.
The Texas crop estimate remained at 4.1 million bales. Fortunately, the Texas crop is of high quality and is selling near the futures contract price. The Southeast cotton crop was reduced about 129,000 bales. But, partly offsetting was increased production in the Delta region.
Export sales from the U.S. this fall have been substantial. However, shipments are the actual indicator of export volume. As is typical early in the harvest season, shipments have been less than sales. Nevertheless, some sales could be cancelled later for various reasons.
A 13.1 million bale crop will be enough to ship 10.4 million bales. The U.S. supply includes 3.9 million bales carried over from last year plus the 13.1 million bale crop.
Cotton growers need to develop a market plan for the new 2014/15 crop and select what crops to plant. Keep in mind to include crop revenue insurance prices as well. Then evaluate and select a marketing plan that will best cover your cash flow.