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

Market Remains Strong as The Limited Bows Out

January 20, 2017

The market consolidated gains of the past few weeks, just as The Limited – a primary supplier of cotton to women – closes its doors.

Market Analysis

Market Holds in Face of USDA Report Adjustments

January 16, 2017

From now likely into the mid-March trading period, the very bullish call sales ratio will continue to carry the ball for the bulls.

Market Analysis

Could the Market Drift into the Mid-70s? It’s Possible.

December 28, 2016

The 70-73 cent price range remains very firm, with a good chance that the market could drift into the mid-70s.

Market Analysis

Export Sales Drive Market as Potential for Explosive Growth Builds

December 19, 2016

U.S. export sales continue to lead trading. But conditions are growing for a potential “explosive fire” under the market.

Market Analysis

Shurley: December Numbers May Contain Hidden Stocking Stuffers

December 12, 2016

USDA’s December production and supply/demand estimates were as expected in some respects. But it also contained a few unexpected and positive surprises.

Market Analysis

Is Market Opening Window for “Made in U.S.” Revival?

December 12, 2016

USDA’s seemingly bearish December supply demand report failed to break cotton’s upside momentum, presenting a small window to potentially revive the “Made in U.S.” theme.

Market Analysis

Prices Hold as U.S. Quality Cotton Moves to Market

December 2, 2016

U.S. crop quality is essentially the highest on record. While mills may be facing potentially higher prices, they are getting a bargain on their U.S. purchases.

Around The Gin
Product News

Enlist Duo Herbicide Registered for Use on Enlist Cotton

January 13, 2017

The U.S. EPA has registered Enlist Duo herbicide for use on Enlist cotton varieties, beginning in 2017.

Product News

Data Show Yield Gains from Indigo Cotton in 2016

January 9, 2017

Data collected from 2016 trials show that Indigo Cotton – a seed treatment based on naturally occurring, in-plant microbes to help increase water use efficiency – led to yield improvements on testing acres, including an 11% average yield increase in West Texas.

Product News

FiberMax and Stoneville Release New Varieties for 2017

January 9, 2017

Cotton growers searching to match the right variety the right field now have two new FiberMax varieties and two new Stoneville varieties to consider for 2017.

Product News

PhytoGen Rolls Out Seven New Enlist Varieties for 2017

January 5, 2017

PhytoGen is releasing seven new cotton varieties with the Enlist cotton trait and WideStrike 3 Insect Protection for the 2017 growing season.

Product News

Do You Qualify for the Stoneville Legacy Club?

January 3, 2017

Signup is now open for the new Stoneville Legacy Club, celebrating both the rich history of Stoneville and the generational wisdom of the growers who make 3-plus bales.

Product News

FiberMax Celebrates Growers Who Maximize Dryland Production

December 30, 2016

The new FiberMax Maximizer Club celebrates growers who produce great dryland cotton yields, and signup for the club is now open.

Product News

EPA Registers Engenia Herbicide from BASF

December 21, 2016

The EPA has registered Engenia herbicide for control of more than 200 broadleaf weeds, including glyphosate-resistant weeds, in dicamba-tolerant cotton and soybeans.

Product News

Growers Impressed with First PhytoGen WideStrike 3 Enlist Variety

December 19, 2016

The first growers to plant PhytoGen brand PHY 490 W3FE say the germplasm and technology combination helped them work smarter and increase cotton production.

Latest News
Market Analysis

Market Remains Strong as The Limited Bows Out

January 20, 2017

The market consolidated gains of the past few weeks, just as The Limited – a primary supplier of cotton to women – closes its doors.

Market Analysis

Shurley on Cotton: Opportunities in Improved Market

January 16, 2017

March futures have improved, and January is looking like a good month. The big question and the uncertainty is whether or not this will last.

Market Analysis

Market Holds in Face of USDA Report Adjustments

January 16, 2017

From now likely into the mid-March trading period, the very bullish call sales ratio will continue to carry the ball for the bulls.

Market Analysis

Bull Market Pushes Prices to Five Month High

January 9, 2017

Prices reached a five-month high, as cotton demand flexed its muscles and pushed the market up.

Market Analysis

Could the Market Drift into the Mid-70s? It’s Possible.

December 28, 2016

The 70-73 cent price range remains very firm, with a good chance that the market could drift into the mid-70s.

Market Analysis

Export Sales Drive Market as Potential for Explosive Growth Builds

December 19, 2016

U.S. export sales continue to lead trading. But conditions are growing for a potential “explosive fire” under the market.

Market Analysis

Shurley: December Numbers May Contain Hidden Stocking Stuffers

December 12, 2016

USDA’s December production and supply/demand estimates were as expected in some respects. But it also contained a few unexpected and positive surprises.

Market Analysis

Is Market Opening Window for “Made in U.S.” Revival?

December 12, 2016

USDA’s seemingly bearish December supply demand report failed to break cotton’s upside momentum, presenting a small window to potentially revive the “Made in U.S.” theme.

Market Analysis

Prices Hold as U.S. Quality Cotton Moves to Market

December 2, 2016

U.S. crop quality is essentially the highest on record. While mills may be facing potentially higher prices, they are getting a bargain on their U.S. purchases.

Market Analysis

Market Set for Shift to March Contract

November 21, 2016

The market is expected to rally higher early in the week as shorts buy their way out. Grower prices will then be based on the March contract, as December will be its expiry period.

Market Analysis

Shurley on Cotton: Closing Out 2016, First Look at 2017

November 21, 2016

The 2016 U.S. crop may still be somewhat of a question mark, but USDA’s November numbers provided clarity on a few things – the crop got smaller in some areas as expected, but still got bigger overall.

Market Analysis

Cleveland: Volatility Reinforces Market Fireworks

November 11, 2016

The cotton market continues to show extreme volatility, as mills and speculative funds attempt to fix prices before the expiry of the December contract. The same fireworks are predicted for the next two weeks.

Market Analysis

Watch for Volatility as December Contract Period Ends

November 4, 2016

There are only a few trading days left before March becomes the lead spot month. The best remaining pricing opportunity for growers should be within this time frame, which could be active and volatile.

Market Analysis

Potential Supply Squeeze Could Push Market Higher

October 31, 2016

With December first notice day only three weeks away, mill buying and other potential squeeze factors could push the December contract to 75 cents and beyond.

Market Analysis

Cleveland: Prices Healthier; China’s Buying

October 21, 2016

After jumping higher on the heels of a bullish world supply demand report, the surge in cotton prices was halted at the 72 cent resistance level. But China is back in buying mode, snapping up nearly 200,000 bales.