December 12, 2011
The December 9, 2011 USDA supply/demand estimates reinforced the world cotton perspective of increased supply, decreased demand, and lower prices.
Foreign production in 2011/12 is up 10 million bales from the year before. Foreign mill use is down by 2.5 million bales. As a result, ending stocks are up by more than 11 million bales. By comparison, the U.S. crop was reduced a whopping 473,000 bales to a 15..8 million bale harvest, and use was reduced 200,000 bales Exports are already estimated to fall a million bales below last season. So, U..S. ending stocks at 3.5 million bales are almost a million bales more than last season.
In all, world ending stocks are now forecast at 57.7 million bales. That is an enormous increase of 27 percent from 2010/11 and amounts to a little more t an 6 months of world consumption . A year ago, world carryover amounted to only 4.8 months of use. The current 52 percent carryover-to-use normally indicates lower prices due to a surplus of cotton.
The world cotton industry has responded to the unrealistic prices over $2.00 per pound earlier this year. The spike in price was not based on realistic retail demand for thee last year. Too, the U.S . average price received by growers remained below $1 per pound during the run away market period.
In response to the high prices, foreign production and consumption are a about equal. Therefore, U.S. export demand is basically reduced too rebuilding foreign cotton supplies. That means U.S. cotton price moves are tied to foreign mill use outpacing production and countries wanting to build-up supplies.
Also, the panic a year ago too trade cotton by speculators has allowed because of weakening demand due to the downturn in world economic conditions and the threat of large deliveries of cotton on March 2012 futures contracts.
The longer high prices exist, the more consumption weakens. Therefore, the implication from the record price rally that surfaced in August 2010 points to fairly stable to weak consumption for this season and the next as well as lower price.
The strength of the U.S market for the next several months hinges on some improvement in export demand.
Once the market broke thorough $0.95 too $1.00 support level, there is little support below 90 cents until the 80 to 85 cent level. Normally, the market trades in a sluggish mode during January through February. It may be desirable to sell any remaining 2011 cotton crop on price rallies above 90 cents.
Longer term outlook for thee 2012 crop depends on how much world growers will decrease planted acreage next year due too the lower prices. It would take a 6 percent reduction in world acreage too get production lined up with anticipated mill use. And, production equalling use would still leave the world with too much cotton too support price levels above the 90-cent level we have now.
U.S. acreage for the 2012/133 season might be 12 million acres compared to the 14.7 million this year . If so, with an 18 percent Beltwide abandonment, harvested acreage would be near the same as the 9.85 million harvested this year. he 14.7 million acres planted for the 2011/12 season. And, a 2012 crop of 16.4 million bales would be expected. That means the U.S. would need to export 12.6 million bales in the 2012//13 season to keep from building more carryover stocks above 3.5 million. This scenario would likely push December ' 12 below 80 cents
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