World Cotton Stocks Lowest in Fifteen Years

June 14, 2010

July cotton futures prices traded in a wide range of 76 cents per pound to 84 cents during the first week of June. The extreme volatility stems from tight exportable cotton supplies due to decreased acreage and small crops that averaged only 12.5 million bales in 2008 and 2009. However, for the preceding five years, the U.S. had plentiful stocks from large crops that averaged 21.0 million bales.

World and U.S. stocks are the lowest since 1995/96. But, with larger 2010/11 U.S. and foreign crops likely, the tight supplies are expected to ease this harvest season. Thus, December ’10 futures has traded in the 74 to 79 cent range, several cents lower than July. Growers should consider placing a floor under most of their crop in the 78 to 79 cent range. That is several cents above the ten-year average high for December futures.

The Texas cotton crop is doing well. The March acreage report indicated 5.6 million acres were intended. Yet, due to favorable moisture and the higher price, final acreage may be larger. Texas growers could easily produce an 8.0 million bale crop and more. They harvested 8.25 million bales in 2007 on just 4.7 million acres.

Cotton growing conditions are also good to excellent in the Southeast, Delta, and Western regions. The all cotton 2010/11 crop harvest has an 18 million bale potential, about 6 million bales more than last year’s crop.

Export Gap Wide

The foreign shortfall in production versus use is estimated at 18.6 million bales in 2010/11. Thus, the U.S. export share of total world exports is expected to increase some 7.5 percent to 37 percent of the world’s 36 million bale market.

Fortunately, in the last decade, export shipments from the U.S. have increased somewhat faster than the decrease in domestic use. On the other hand, foreign use has increased from 83 million to near 116, or by nearly 33 million bales.

China is projected in 2010/11 to produce a 33 million bale crop and domestic use of 49 million. They will need to import or use from their 20 million bale stocks about 16 million. India is expected to produce 25 million bales and domestic use a little more than 20 million. They will be strong competitors in the export market.

Tight stocks do support higher prices until a new crop is harvested. But, higher prices lead to increased production and decreased usage. Reports indicate textile manufacturers in China are using more synthetic fiber because of higher cotton prices.

Producers should have their marketing plan together and mostly in place by mid-year. Remember the June 30th USDA acreage report will set new guidelines for buying and selling December ’10 futures and the associated options.


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