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

Cleveland: Feeling Bearish and Blue

February 1, 2016

Loss of cotton demand and a looming move of Chinese stocks has even O.A. Cleveland saying, “This hurts.”

Market Analysis

Shurley on Cotton: Prices Still Low, but Find Stability

January 25, 2016

After recently threatening the 60-61 cent range, prices now seem to have found a little support and – dare we say – upward momentum.

Market Analysis

Shurley on Cotton: Looking Back at 2015 and Ahead to 2016

January 13, 2016

The New Year has not started off well for cotton. It is concerning, but this recent decline is likely short-term.

OA Cleveland
Market Analysis

Cleveland: Stagnant Prices and Demand Are Frustrating

January 8, 2016

The cotton market continues to take it on the chin, as prices go nowhere and demand for cotton remains low.

don shurley
Market Analysis

Shurley on Cotton: Ending the Year with a Positive Outlook

December 22, 2015

In spite of the challenges in 2015, it’s good to remember that the marketing year is less than half over. There may yet be better opportunities down the road.

OA Cleveland
Market Analysis

Cleveland: Low Demand Maintains Status Quo

December 21, 2015

Despite what should be positive indicators for cotton, the lingering loss of market share has simply stripped demand from the market for now.

Market Analysis

Shurley on Cotton: Hitting a Wall at 65 Cents

December 14, 2015

The disappointing decline is likely due to some of the bullish energy running out after the nice uptick we’ve experienced recently, plus a not so encouraging export report and the December USDA production and supply/demand numbers.

Around The Gin
Product News

New FieldView Drive Provides Real Time Field Data Transfer

January 26, 2016

The Climate Corporation is launching FieldView Drive, a device that provides seamless transfer of real time field data and mapping from planting or harvesting equipment to a mobile device.

Product News

PhytoGen Releasing First Enlist Cotton Variety for 2016

January 13, 2016

PhytoGen is releasing PHY 490 W3FE, the first cottonseed variety with the Enlist cotton trait, for the 2016 growing season.

Product News

Enlist Cotton Ready to Launch for 2016

January 6, 2016

Dow AgroSciences announced that cotton growers will have access to the Enlist cotton technology in 2016.

Product News

Bayer Announces New 2016 FiberMax and Stoneville Cotton Varieties

January 5, 2016

Bayer has announced the release of three new FiberMax and Stoneville varieties for 2016, all featuring the company’s GlyTol, LibertyLink and TwinLink technologies.

Product News

Deltapine Announces Class of 16 Varieties

December 14, 2015

Four new Bollgard II XtendFlex cotton varieties make up the recently announced Deltapine Class of 16.

Product News

PhytoGen Varieties Raise Standards for Yield and Quality

November 30, 2015

Growers propelled two PhytoGen brand varieties toward the top of the 2015 USDA Cotton Varieties Planted report.

Product News

2016 Seed Showcase – All-Tex and Dyna-Gro

November 16, 2015

Sister cottonseed companies are working to extend their footprint in 2016.

Product News

2016 Seed Showcase – CROPLAN

November 16, 2015

Up-and-coming CROPLAN relies on careful variety evaluation and placement strategies for growth.

Latest News
Market Analysis

Cleveland: Feeling Bearish and Blue

February 1, 2016

Loss of cotton demand and a looming move of Chinese stocks has even O.A. Cleveland saying, “This hurts.”

Market Analysis

Shurley on Cotton: Prices Still Low, but Find Stability

January 25, 2016

After recently threatening the 60-61 cent range, prices now seem to have found a little support and – dare we say – upward momentum.

Market Analysis

Cleveland: “Stuck in the Mud” Market Remains Tiresome

January 22, 2016

This market is stuck in the mud – looking more like just holding a bottom rather than turning around.

Market Analysis

Cleveland: Market Yawns as It Closely Watches China

January 18, 2016

Despite a 2.0 million bale reduction in world production and consumption, the market yawned and moved lower, all while watching for signs of a potential dump of low grade stocks by China.

Market Analysis

Shurley on Cotton: Looking Back at 2015 and Ahead to 2016

January 13, 2016

The New Year has not started off well for cotton. It is concerning, but this recent decline is likely short-term.

Market Analysis

Cleveland: Stagnant Prices and Demand Are Frustrating

January 8, 2016

The cotton market continues to take it on the chin, as prices go nowhere and demand for cotton remains low.

Market Analysis

Shurley on Cotton: Ending the Year with a Positive Outlook

December 22, 2015

In spite of the challenges in 2015, it’s good to remember that the marketing year is less than half over. There may yet be better opportunities down the road.

Market Analysis

Cleveland: Low Demand Maintains Status Quo

December 21, 2015

Despite what should be positive indicators for cotton, the lingering loss of market share has simply stripped demand from the market for now.

Market Analysis

Shurley on Cotton: Hitting a Wall at 65 Cents

December 14, 2015

The disappointing decline is likely due to some of the bullish energy running out after the nice uptick we’ve experienced recently, plus a not so encouraging export report and the December USDA production and supply/demand numbers.

Market Analysis

Cleveland: Market Rises, Then Slips, Following USDA Report

December 14, 2015

The market slipped a bit last week. But it’s set to crawl higher – backing and filling along the way, but with a positive upward bias.

Market Analysis

Market Showing Bullish Indicators

December 4, 2015

The cotton market is demonstrating signs of life again. The U.S crop will be lower, and improved U.S. exports will hone sharp points on the old bull’s horns.

Market Analysis

Shurley on Cotton: Prices Finding More Support and Momentum

November 30, 2015

Prices are finding increasing support around the 62-cent level. That may not be exciting, but firming up the floor in a very volatile and uncertain market is a good thing.

Market Analysis

Shurley on Cotton: Prices Need Something to Grab Hold Of

November 16, 2015

Cotton prices desperately need something to grab hold of to help build momentum.

Market Analysis

World Production and Carryover Drops, But No Change in Prices

November 13, 2015

The absence of almost anything resembling demand continues to keep cotton prices locked in a near 10-cent trading range.

Market Analysis

Shurley on Cotton: Looking Once Again for 4-Wheel Drive

November 2, 2015

U.S. fiber quality has been at a premium, especially for the last two crop seasons. This is expected to continue, but it is uncertain for how long and for what price.