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

With Prices Rallying, It’s Time for “Significant Action”

December 8, 2017

The long-awaited rally above 70 cents appeared to mature this week. For those not already priced at 75 cents, it could be time to take significant action.

Market Analysis

U.S. Sales Booming to Meet Bullish Demand

November 17, 2017

Cotton appears to be caught in a battle between supply and supply. And that keeps prices well positioned to stay where they are.

Market Analysis

Increased Cotton Demand Moving the Market

November 11, 2017

A bullish supply demand report for November proves that demand moves markets. And demand for cotton has resurfaced.

Market Analysis

Cleveland: Yields, Quality, Consumption Still Rising

November 4, 2017

Reports of high yields, premium quality and growing consumption are keeping prices at the higher end of the trading range.

Market Analysis

India and Frost Combine to Prop Up Market

October 27, 2017

India’s plan to keep more of its cotton for domestic use, plus a potential freeze in West Texas, propped up the market during the past week.

Market Analysis

Bears Growling on Harvest and Demand Challenges

October 22, 2017

Although current trading activity represents a bearish price outlook, Dr. O.A. Cleveland still believes the 65 cent price support will hold. . .even though more experts are abandoning that position.

Market Analysis

Shurley: October Numbers Not As Expected, But Prices Hold

October 18, 2017

USDA’s October production and supply and demand estimates are like apples – pick and choose and you’ll find some numbers you like...and some you won’t.

Around The Gin
Product News

Seven New Varieties in Deltapine Class of 18

December 11, 2017

Seven new varieties – including five Bollgard 3 XtendFlex offerings – join the Deltapine product lineup as the Class of 18.

Product News

Special Roundup Ready PLUS Incentives for Arkansas

December 7, 2017

Monsanto is offering a special Roundup Ready PLUS Crop Management Solutions platform in Arkansas for 2018 for growers planting XtendFlex cotton and Roundup Ready 2 Xtend soybean varieties.

Product News

Monsanto Sets 2018 Crop Protection Incentives

December 5, 2017

Monsanto will provide multiple tools, resources and products to help cotton and soybean growers maximize weed control in 2018.

Product News

Praxidyn’s Mixmate Named a 2018 AE50 Award Winner

November 27, 2017

The American Society of Agricultural and Biological Engineers has recognized Praxidyn's Mixmate portable ag chemical blending and recordkeeping system with a 2018 AE50 award.

Product News

Bayer Looking for FiberMax One Ton Club Growers for 2017

November 16, 2017

Cotton growers who produce an average of 2,000 lb/A on 20 or more acres planted to FiberMax varieties in 2017 are eligible to be part of the 13th annual FiberMax One Ton Club.

Product News

Monsanto Delays NemaStrike for Additional Review

November 2, 2017

After finding cases of skin irritation, Monsanto is pulling its nematode seed treatment NemaStrike for further product review.

Product News

Intrepid Trio: Naturally Balanced Nutrition in Every Granule

November 1, 2017

Intrepid Trio contains three essential nutrients for cotton plants.

Product News

Save Time, Increase Efficiencies with Mixmate

November 1, 2017

Mixmate from Praxidyn is a precision chemical mixing system for small farms to large enterprises.

Latest News
Market Analysis

With Prices Rallying, It’s Time for “Significant Action”

December 8, 2017

The long-awaited rally above 70 cents appeared to mature this week. For those not already priced at 75 cents, it could be time to take significant action.

Market Analysis

Prices Push Above 70 Cents as Demand Remains High

December 2, 2017

Driven by tightening world stocks and led by an ever-increasing world consumption, cotton prices continue to move higher.

Market Analysis

Shurley: Demand Is Key to Price Strength and Stability

November 21, 2017

Demand is the key to cotton's future. We still have a way to go, but the outlook has certainly improved.

Market Analysis

U.S. Sales Booming to Meet Bullish Demand

November 17, 2017

Cotton appears to be caught in a battle between supply and supply. And that keeps prices well positioned to stay where they are.

Market Analysis

Increased Cotton Demand Moving the Market

November 11, 2017

A bullish supply demand report for November proves that demand moves markets. And demand for cotton has resurfaced.

Market Analysis

Cleveland: Yields, Quality, Consumption Still Rising

November 4, 2017

Reports of high yields, premium quality and growing consumption are keeping prices at the higher end of the trading range.

Market Analysis

India and Frost Combine to Prop Up Market

October 27, 2017

India’s plan to keep more of its cotton for domestic use, plus a potential freeze in West Texas, propped up the market during the past week.

Market Analysis

Bears Growling on Harvest and Demand Challenges

October 22, 2017

Although current trading activity represents a bearish price outlook, Dr. O.A. Cleveland still believes the 65 cent price support will hold. . .even though more experts are abandoning that position.

Market Analysis

Shurley: October Numbers Not As Expected, But Prices Hold

October 18, 2017

USDA’s October production and supply and demand estimates are like apples – pick and choose and you’ll find some numbers you like...and some you won’t.

Market Analysis

Trying to Read the Market: Bearish, Neutral or Bullish?

October 13, 2017

After finding USDA’s October WASDE report initially bearish and somewhat neutral, cotton prices went mildly bullish thinking about stronger demand and the real size of the U.S. and foreign crops.

Market Analysis

Examining Loan Program and Rate Changes for 2017

October 9, 2017

Dr. Don Shurley provides an analysis of what changes in the marketing assistance loan for 2017 could mean for cotton growers.

Market Analysis

Prices Still Sideways as Bearish Moods Grow

October 6, 2017

The market is watching weather and waiting for USDA’s October report. But bearish signs are starting to surface in some segments.

Market Analysis

Cleveland: Market in Hang On and Wait Mode

October 1, 2017

Cotton prices are holding without clear direction right now, as the market continues to watch USDA projections and harvest conditions for answers.

Market Analysis

Lower Chinese Stocks, Higher Polyester Prices Offer Market Hope

September 22, 2017

The market is holding steady, thanks again to China. Their Reserve auction has reduced cotton stocks and bumped consumption. And now, polyester prices are rising as the Chinese trim production.

Market Analysis

USDA Spins Market with Record Supply-to-Use Ratio

September 15, 2017

Hurricanes were but a mere hiccup for the world and U.S. crops. Instead, USDA spun some record-setting numbers that left the market dizzy.