Shurley on Cotton: Market Implodes

By Dr. Don Shurley

 

Everyone wants to know what has happened to the market and why? Unfortunately, there are no easy answers.                                                                                                                                            

Most analysts saw the possible range in prices for the 2014 crop to be from 70 to 85 cents, with 70 to 75 cents being the pessimistic outlook and 85 cents being the top, or optimistic, outlook.

The combination of factors/forces that would lead to the low end of that range in prices certainly appears to have materialized. In fact, we’ve seen prices (Dec14 futures) drop from about 85 cents in early May to 68 cents, closing at 68.12 on July 11. Prices were able to hold support at around 76 cents or better for most of June, but it’s been a freefall since then.  

USDA recently released its much anticipated July production and supply/demand numbers. But prices had already begun their slide two weeks ago, so it’s hard to lay the blame completely on that report.  Having said that, however, over the past couple of weeks, analysts had already begun to anticipate today’s numbers and factor that into prices. Thus, the slide had already begun. The report not only confirmed those expectations, the numbers were actually more than expected – and even worse for prices.

The U.S. crop is estimated at 16.5 million bales. This is based on the June acres planted estimate, an abandonment of only 15 percent, and a yield of 816 lbs/acre. 

The August report will be the first to contain an actual survey-based yield estimate for this year’s crop. Crop conditions have improved, and the August production estimate could move even higher. As of July 6, 55 percent of the U.S. crop was rated good to excellent, compared to 53 percent for the previous week and 44 percent last year.

U.S. exports for 2014/15 are pegged at 10.2 million bales. This compares to 9.7 million in the June estimate and 10.5 million bales last year. Given the abundance of stocks in China and worldwide, exports of over 10 million bales would be better than thought possible. It could also simply be reflecting higher export supplies and lower prices.

U.S. ending stocks are projected to be 5.2 million bales at the end of the 2014 crop marketing year – up from 2.7 million bales on-hand going in.

On the foreign and total World picture, the report continues to trend in the wrong direction. World stocks at the end of the 2014 crop year are now projected to be 105.7 million bales – up another three million bales from the June estimate. Some of this is accounted for by the U.S. increase. The bulk of the rest of it is further increase in China.

For the 2013 crop marketing year that will conclude on July 31, USDA lowered China’s cotton Use by one million bales.

There were no other changes, so this increases 2013/14 ending stocks (2014/15 beginning stocks) by that one million bales. China’s Use for the 2014 crop year was lowered a half million bales from the June projection. So, in total, China’s stocks projected to be on-hand next year this time were upped 1.5 million bales from the June estimate.

It’s projected that China’s stocks will increase another one million bales this season (from 61.31 to 62.26 million bales). The Chinese stocks situation is not new. These stocks have been building since 2010, and the market (prices) has dealt with this for going on four years.

Chinese stocks have been the bomb waiting to explode. But the market could, for the most part, ignore it for two reasons: (1) China wasn’t using the stocks, so in the short-term the big supply didn’t matter, and (2) stocks outside of China (in the rest of the world – ROW) were “tight.”

Well, as it ends up, neither of these were 100 percent true, and this was pointed out during producer meetings this past winter. Regardless of the reasons and stocks policies, the fact is that China will import much less cotton for the 2014 crop season. That’s can’t be good for the U.S. that depends on exports and China being our number one buyer. Also, the ROW stocks that were said to be “tight” were, in fact over time, getting less tight during the past season as evidenced by the trend in USDA’s monthly numbers. As it ends up, ROW ending stocks for 2013 were greater than for 2012 and not that much lower than previous years. Today’s numbers show stocks in both China and the ROW are expected to continue to grow.

Prices are likely to remain under the pressure of potentially large supplies. World Use at 111 million bales, compared to 112 million projected in June, also doesn’t help. It appears that the pessimistic worst case is being realized. Producers are fortunate if they already have a fair portion of expected 2014 production priced. Otherwise, it could be tough for prices to mount much of a comeback between now and harvest unless supply shocks take place and/or demand improves.

There may still be enough optimism out there to think we’ve slipped too far, too fast. But will anybody risk being a buyer in this market until something bullish actually happens? This market desperately needs stability – something to stop the free fall. If prices don’t bounce back to your satisfaction between now and harvest, you’ll have to wait and give the market longer to hopefully adjust back up over the winter.

 

 

Shurley is Professor Emeritus of Agricultural Economics, Department of Agricultural and Applied Economics, University of Georgia

 

Topics: ,

Leave a Reply

Market Analysis Stories
OA Cleveland
Market Analysis

Despite Bearish Reports, Cotton Continues to Hold the Higher Ground

May 16, 2015

The cotton market continues to defy the onslaught of bearish shots across its bow.

OA Cleveland
Market Analysis

Is the Cotton Market Showing Longer Legs?

May 1, 2015

The stars seemed to align for the cotton market this past week, as prices moved to highs not seen in almost nine months.

Market Analysis

Shurley on Cotton: So Far, Prices Fail To Advance

April 28, 2015

To date, there has been little, if any, incentive for producers to do much with regard to pricing this year’s crop.

Market Analysis

Cotton Inc. Resets Risk Management Seminar in Maricopa for May 19

April 28, 2015

May 19 is the new date for Cotton Incorporated’s Cotton Price Risk Management Seminar in Maricopa, AZ.

Market Analysis

Market Bumps Upward as the Weather Watch Begins

April 27, 2015

The cotton market jumped higher this week, finding price support from the litany of pre-plant weather problems around the globe.

Market Analysis

Market Lows Remain Higher, Even With Recent Price Dip

April 20, 2015

Cotton futures gave up three weeks of gains last week as the market lost some 200 points. Yet the market continues to see higher and higher lows, which generally points to an uptrend.

don shurley
Market Analysis

Shurley on Cotton: Prices Heading Toward “Testing Ground”

April 10, 2015

Now that old crop has clearly broken through 65 cent ceiling, there is belief that prices will continue to trek higher toward a new “testing ground.”

Around The Gin
Product News

Deltapine NPE Program Begins Eighth Year of On-Farm Variety Evaluation

April 28, 2015

Nearly 200 farmers will be part of the Deltapine New Product Evaluator program this year to help evaluate cotton variety candidates for the Deltapine Class of 16.

Product News

EPA Approves Enlist Duo Herbicide for Use in Additional States

April 2, 2015

The EPA has approved Enlist Duo herbicide for use in nine additional states, including four in the Cotton Belt.

Product News

New 2015 CROPLAN Cotton Varieties Feature Bollgard II XtendFlex Technology

March 19, 2015

WinField is adding Monsanto’s new Bollgard II XtendFlex cotton trait to two new CROPLAN cotton varieties for 2015.

Precision Technology

New Features for TeeJet Aeros 9040 Field Computer

March 18, 2015

TeeJet has added new features to its Aeros 9040 Field Computer for 2015.

Precision Technology

TeeJet Launches New DynaJet Flex Nozzle Control System

March 17, 2015

The new DynaJet Flex 7120 nozzle control system from TeeJet Technologies helps growers manage spray quality across a variety of operating speeds and application rates.

Product News

New Cheminova Chemistry to Help Control Herbicide Resistant Weeds

February 23, 2015

Cheminova plans to register pethoxamid, a new herbicide active ingredient, to help growers manage herbicide-resistant weeds.

Product News

Brake Herbicide Receives Section 18 Approvals in Six States

February 18, 2015

Brake Herbicide has received Section 18 emergency use exemptions for control of glyphosate-resistant Palmer amaranth in six cotton producing states.

Precision Technology

TeeJet Matrix 430 Provides Simple, Easy-to-Use Guidance

February 18, 2015

TeeJet Technologies’ new Matrix 430 GNSS guidance system is ideal for a wide range of field applications.

Latest News
Market Analysis

Despite Bearish Reports, Cotton Continues to Hold the Higher Ground

May 16, 2015

The cotton market continues to defy the onslaught of bearish shots across its bow.

Market Analysis

Shurley on Cotton: No Surprises in May USDA Numbers, Sideways Market Continues

May 13, 2015

USDA’s May WASDE report contains the first U.S. and World estimates for the 2015 crop year, and the numbers are about as expected – some better than expected.

Market Analysis

Market Up and Down, But Not Down and Out

May 11, 2015

With some exceptions, cotton prices spent time backing and filling the entire week. Yet the market is still attempting to flex its arms and muscles a bit to the top side.

Market Analysis

Is the Cotton Market Showing Longer Legs?

May 1, 2015

The stars seemed to align for the cotton market this past week, as prices moved to highs not seen in almost nine months.

Market Analysis

Shurley on Cotton: So Far, Prices Fail To Advance

April 28, 2015

To date, there has been little, if any, incentive for producers to do much with regard to pricing this year’s crop.

Market Analysis

Cotton Inc. Resets Risk Management Seminar in Maricopa for May 19

April 28, 2015

May 19 is the new date for Cotton Incorporated’s Cotton Price Risk Management Seminar in Maricopa, AZ.

Market Analysis

Market Bumps Upward as the Weather Watch Begins

April 27, 2015

The cotton market jumped higher this week, finding price support from the litany of pre-plant weather problems around the globe.

Market Analysis

Market Lows Remain Higher, Even With Recent Price Dip

April 20, 2015

Cotton futures gave up three weeks of gains last week as the market lost some 200 points. Yet the market continues to see higher and higher lows, which generally points to an uptrend.

Market Analysis

Shurley on Cotton: Prices Heading Toward “Testing Ground”

April 10, 2015

Now that old crop has clearly broken through 65 cent ceiling, there is belief that prices will continue to trek higher toward a new “testing ground.”

Market Analysis

Tight Supplies of Quality Cotton Poised to Drive Market Higher

April 5, 2015

A very tight quality shortage that only gets tighter will drive cotton prices higher. This market has 70 cents, basis December, written all over it.

Market Analysis

Plexus: Factors Lining Up for Price Growth

April 3, 2015

Reduced global acreage, increased mill demand and low inventories of quality cotton could help push prices into the high 60s or even low 70s over the next few months.

Market Analysis

Shurley on Cotton: USDA Planting Intentions In; Time for Market to Focus on Other Realities

March 31, 2015

The March 31 USDA Prospective Plantings report of 9.55 million cotton acres is slightly higher than most other pre-report expectations. Now, it’s time for the market to focus on other matters.

Market Analysis

Cotton Prices Itching to Move Higher, as Growers Ponder Acreage Shifts

March 27, 2015

The market has shown it is comfortable with higher prices, as planting and production dynamics hold the potential for larger than expected U.S. cotton plantings.

Market Analysis

Cleveland: Market on Path to Higher and Higher Lows

March 20, 2015

Cotton prices bounced back in response to the time-honored adage, “low prices cure low prices.” But there are still a few bumps and curves along the way.

Market Analysis

Plexus: Market Bumps on Weaker Dollar and U.S. Supply Questions

March 20, 2015

While most commodity prices turned lower again, cotton rallied a bit, thanks to a constructive U.S. export sales report. But the big question going forward is how many tenderable grades are left in the U.S.?