Cleveland: Feeling Upbeat Following the Beltwide

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The Beltwide Cotton Conferences concluded in San Antonio this week with growers in an upbeat mode. Yes, there were a laundry list of difficulties, including the continued drought in Texas, quality problems in the Mid-South, increasing production costs, and demand. However, on the plus side were stronger prices than most had expected and the outlook for good prices for the 2013 crop. Too, demand is actually a plus for the market. Granted, demand is not as strong as it was three years ago; however, the past five months have witnessed a resurgence in demand that has surprised most in the industry. Demand is now a shining star for the cotton industry and all indications point to an even brighter star. Too, USDA released it January world supply demand report and as expected it showed a strong increase in U.S. exports, a further drought-reduced crop in the U.S. and a decrease in Indian demand (a surprise). The new crop December contract continues to flirt with 80 cents, but has not been able to find the traction to move to that level. Yet, it is coming.  Too, most of the old crop is now sold and this should bode well for higher prices in both the May and the July contracts as textile mills still have more than half of their needs still to buy.

The USDA estimates that the 2012 U.S. crop will total 17 million bales, down 200,000 from last month’s estimate. Additionally, the demand for U.S. exports is now estimated at 12.2 million bales, up 400,000 bales from last month. U.S. carryover is estimated at 4.8 million bales with the stocks-to–use ratio at a very healthy 31 percent. USDA indicated that it raised the estimate of U.S. exports on the basis of export sales to China. However, the U.S. is also enjoying increased sales to Turkey, Bangladesh, Vietnam and other Asian countries.

The major surprise was the reduction of Indian consumption by 500,000 bales, now down to 21.50 million bales. The implication was that the reduction was because of a smaller crop, but the crop was not lowered and Indian exports were increased by 500,000 bales. World production is now estimated at 119 million bales, down only six million from the prior year. World consumption was also lowered by USDA, in a huge surprise, 400,000 bales and down to 106 million bales.

The industry feels USDA must lower the Indian crop by at least one million bales and increase domestic consumption there by at least 500,000 bales. Too, the industry is also looking for a major adjustment in the level of Indian carryover stocks. The very strong increase in textile margins is driving a sharp increase in cotton consumption in all Asian countries except China. The increase in other countries will more than offset any failure of the Chinese mills to ramp up their production. 

The remaining seven months of the 2012/13 marketing year will see numerous changes in world supply and demand, possibly more than ever. It is thought that world consumption will increase at least 3-4 million bales and world carryover will be lowered by 5-7 million bales. The 77-80 cent trading range for December supports increased world consumption. Too, the market is setting up to possibly see a very quick jump from 80-81cents to 83-84 cents in the December contract. 

Cleveland is a Professor Emeritus, Department of Agricultural Economics, Mississippi State University.
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