facebook_pixel

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
Market Analysis

Shurley on Cotton: More Tariff Talk

April 9, 2018

The jury is still out on whether or not the “verbal war” between the U.S. and China will actually result in tariffs, and what the impact on cotton will be.

Market Analysis

Strong Demand, Drought Concerns Pushing Prices

April 14, 2018

Thanks to mill demand, shrinking quality stocks and increased drought concerns in the Southwest, cotton continues to post gains in spite of the selling pressure created by rolling positions to the July contract.

don shurley
Market Analysis

Shurley: This is Now USDA’s Number for Cotton

April 1, 2018

In my opinion, USDA’s March 30 Prospective Plantings report gets us much closer to what will eventually be the acres planted number.

Young Cotton Plant
Market Analysis

Cleveland: Start Pricing This Year’s Crop

March 24, 2018

Plant, plant, plant continues to be the motto. But it’s also time to add price, price, price to the discussion.

Market Analysis

Demand, Weather Concerns Driving Strong Trade

March 16, 2018

The market seldom sees a three-year price stream so favorable.

Market Analysis

Shurley: Pulling the Trigger on the 2018 Crop

March 16, 2018

Producing a cotton crop ultimately commits you to also sell the crop. But at what point do you say the price is “good enough?”

Market Analysis

Multiple Factors Driving Cotton’s Price Growth

March 9, 2018

The fundamentals of supply and demand – among other factors – continue to drive cotton prices toward the high 80s.

Around The Gin
Product News

FiberMax Honors One Ton Club Growers for 2017

April 17, 2018

The FiberMax One Ton Club recently honored 188 cotton growers who qualified for the club with their 2017 harvest results.

Product News

BASF Adds Engenia Spray Tool to Aid Applications

April 16, 2018

A new easy-to-use resource puts critical weather requirements for applying Engenia herbicide in one convenient location.

Product News

Reduce Timing Guesswork for Cotton Planting

April 16, 2018

Bayer’s online Cotton Planting Forecasting tool can help growers determine the optimal planting window to improve their chances at securing a strong stand.

Product News

Deltapine NPE Program Begins Class of 19 Evaluations

April 9, 2018

Nine Class of 19 variety candidates will be in growers’ fields this year as the Deltapine New Product Evaluator (NPE) Program kicks off its eleventh season.

Product News

Americot Expands Research and Sales Teams

April 5, 2018

Americot has added six new team members to the company’s research and sales staffs.

Product News

Greenleaf Introduces TipGuard Nozzle System

April 5, 2018

Greenleaf Technologies has introduced its new TipGuard System to protect spray tips from contact damage.

Product News

New BASF Reward Program for AR Growers Facing Dicamba Ban

March 27, 2018

BASF has revised its Grow Smart Rewards program to provide Arkansas growers alternative weed control solutions during the dicamba application ban from April 16 through October 31.

Product News

DuPont Vydate Products Fully Available for 2018

March 15, 2018

DuPont Vydate brand insecticide/nematicide products – including Vydate C-LV for cotton – will be fully available for sale and use during the 2018 growing season.

Latest News
Market Analysis

Strong Demand, Drought Concerns Pushing Prices

April 14, 2018

Thanks to mill demand, shrinking quality stocks and increased drought concerns in the Southwest, cotton continues to post gains in spite of the selling pressure created by rolling positions to the July contract.

Market Analysis

Shurley on Cotton: More Tariff Talk

April 9, 2018

The jury is still out on whether or not the “verbal war” between the U.S. and China will actually result in tariffs, and what the impact on cotton will be.

Market Analysis

Market Holds in Face of Tariff Rumblings

April 8, 2018

World consumption continues to support prices, but the mere suggestion of tariffs makes speculative fund managers nervous and increases market volatility.

Market Analysis

Cleveland: Prices Rally on USDA Acreage Report

April 1, 2018

USDA’s annual Prospective Plantings report pleasantly surprised the market, as seen by the price rally for cotton following the report’s release.

Market Analysis

Shurley: This is Now USDA’s Number for Cotton

April 1, 2018

In my opinion, USDA’s March 30 Prospective Plantings report gets us much closer to what will eventually be the acres planted number.

Market Analysis

Cleveland: Start Pricing This Year’s Crop

March 24, 2018

Plant, plant, plant continues to be the motto. But it’s also time to add price, price, price to the discussion.

Market Analysis

Demand, Weather Concerns Driving Strong Trade

March 16, 2018

The market seldom sees a three-year price stream so favorable.

Market Analysis

Shurley: Pulling the Trigger on the 2018 Crop

March 16, 2018

Producing a cotton crop ultimately commits you to also sell the crop. But at what point do you say the price is “good enough?”

Market Analysis

Multiple Factors Driving Cotton’s Price Growth

March 9, 2018

The fundamentals of supply and demand – among other factors – continue to drive cotton prices toward the high 80s.

Market Analysis

The Market’s Advice: Plant, Plant, Plant!

March 4, 2018

As world and U.S. ending stocks continue to shrink, growers have an opportunity to price the 2018 crop in the low 80s.

Market Analysis

Trucking Issues Limiting Timely Cotton Movement

February 24, 2018

Demand continues to exceed expectations. But new trucking regulations are putting a damper on timely movement of cotton and other ag products.

Market Analysis

Cotton Prices Settle, Poised to Climb Again

February 16, 2018

The market’s downside move appears to be over, ending a three-week downturn.

Market Analysis

Cotton Futures Nudge Higher, Despite Forecast for Rising U.S. Sowings

February 13, 2018

Cotton futures nudged higher, despite a much-watched survey on U.S. sowings showing a seven-year high, as the estimate came in

Market Analysis

NCC: Multiple Factors Offer Mixed Signals for Cotton

February 11, 2018

According to NCC economists, a few key factors will shape the U.S. cotton industry’s 2018 economic outlook.

Market Analysis

Talking Curveballs, Credibility and Carryovers

February 9, 2018

The February WASDE report served up a curve ball that caught the industry off guard. For the sake of USDA’s reputation, I hope they are correct.