By: Dr. O.A. Cleveland
December 2, 2017
Driven by tightening world stocks and led by an ever-increasing world consumption, cotton prices continue to move higher. The nearby March contract settled the past week at 73.28, with the 2018 July at 74.05. Export demand continues to drive the market, as U.S. growths are the most price competitive in the world. U.S. merchants and cooperatives continue their very aggressive basis offers to mills, as mills add to their near-record pace of on-call sales.
The backdrop behind the expanding demand is that the Indian crop may be as much as 1.5 million bales below the current USDA estimate. Some other crops will also be reduced in the forthcoming USDA estimates. World carryover is falling much more than most in the market expected. Basically however, demand is moving the market, and the 70.50-71.00 cent level is establishing itself as the new bottom.
The projection is up to 76 cents, but I do pity the soul that holds out for that. Export sales did slow as prices moved above 70 cents, and the weekly sales report showed net weekly sales of upland at 276,500 RB and Pima at 8,600 RB. Major buyers of upland were Pakistan, China, Turkey and Vietnam.
Upland sales of 52,800 RB were reported for 2018-19, and that included sales to Pakistan – an early indication of structural problems in that country’s important cotton economy. Shipments included 112,200 RB of upland and 14,800 RB of Pima.
Sales to date suggest USDA will boost their estimate of 2017-18 exports between 750,000 to 1.0 million bales in its December supply demand report. Granted, that will be an exceptionally large jump for USDA. But the current estimate is only 14.5 million bales, even less than the prior year’s 15 million. ‘
Too, with other global supplies being reduced, the U.S. will continue to make excellent export sales. Sales this past week were made to 20 countries – an indication of the widespread demand for U.S. cotton.
Textile mill pricing activity also continues to support the market, as on-call sales were 141,713 this week, slightly down from last week. However, on-call sales based on the March, May and July futures contracts were considerably higher than last week. This represents underlying buying of futures contracts and will be supportive to the market. These have been increasing all season and will be a key factor in supporting the market on any dip back to the new 70.50-71.00 cent bottom.
The ever increasing world cotton consumption – coupled with smaller crops in India, Pakistan, China and Australia – have created a very tight situation in the availability of stocks available for world trade. The U.S. is gaining an increased share of this trade. Additionally, it creates a scenario of declining world carryover, and we are now on pace to reduce world stocks for the fourth consecutive year.
USDA published its cotton baseline for 2018 this week and projected cotton planting would drop to 11.1 million acres. Likely their reasoning related to the slight fall in cotton prices for the year to date. However, growers have had several opportunities to price between 73 cents and 75 cents, and will again. Thus, coupled with the U.S. record yield, growers will again seed some 12.1 to 12.3 million acres in 2018. Growers should have ample opportunities to price the remainder of the 2017 crop above 70 cents. Likewise, the 2018 crop is undervalued at 70 cents.