Another crop report – pretty much as advertised – and another flat week for market prices. The more things change, the more they stay the same.
USDA increased its estimate of 2015 U.S. cotton production by 300,000 bales in its September supply demand report released on September 11. Estimates surrounding the U.S. industry were generally as expected, containing no surprises, but sinking the ship of those that have consistently portrayed the U.S. crop at 14 million bales and larger. World production was marginally reduced. But the major change was a decrease in world consumption and a foregoing increase in world carryover.
The market was marginally friendly to the report, as expected. Yet, the very tight two-cent trading range – 62-64 cents, basis the nearby December – remains in play, still waiting for more fundamental news.
While world production was lower, the demand side of the price equation is begging for positive news. Demand seemingly remains locked in a very slow and miniscule climb. Cotton’s loss of market share remains the primary culprit in keeping tight reigns on demand growth. The consumer’s penchant for increased savings is also preventing cotton-rich goods from moving off the shelf. Nevertheless, the continued erosion in the availability of quality cotton will support prices in the 60’s and eventually pull the spot futures above 70 cents.
In keeping with an estimated larger U.S crop, USDA increased its estimate of U.S. exports to 10.2 million bales – up 200,000 from August – and increased U.S. carryover 100,000 bales to 3.2 million. Intuitively, one would have expected the export estimate to have been increased 300,000 bales and carryover to have been unchanged. Yet, the estimate does point to the severe shortage of high grade U.S stocks, which should pull U.S. exports 100,000 to 200,000 bales higher.
World production for the 2015 was estimated at 109 million bales, essentially unchanged from August. However, world consumption was decreased to 113 million bales, down a bit more than one million from the prior month’s estimate. The primary consumption declines were noted in a 400,000 bale decline in Brazil. Major importers expecting to see consumption declines were Indonesia (200,000 bales), Turkey (100,000 bales), Pakistan (200,000 bales) and Thailand (100,000 bales).
Additionally, USDA did decrease its estimate of Indian consumption from 26 million bales down to 25.7 million. It should be noted that Vietnam, the primary importer of U.S. cotton, will increase its cotton consumption.
The consumption decline estimated in Brazil was transferred directly to carryover stocks, as was the export decline in Australia of 100,000 bales. Since the makeup of these stocks represents high quality, it is strongly believed that the export market will take those stocks, principally due to the U.S. shortage of high quality.
The current price environment for cotton continues to be dominated by demand concerns across the globe and the mills’ year-long successful plan of simply waiting out the situation and buying on an as-needed basis.
It is felt that the U.S. crop will get smaller as the growing season progresses, and the eventual crop size will be some 200,000 to 400,000 bales smaller. However, crop watchers still say USDA will have to lower its estimate of the Indian crop 1.0 million bales, down to 28.0 million.
At least two U.S. cotton growers suggested there was a bit more U.S. industry-based research regarding nonwovens than I implied. Kudos to them, and I trust they are correct. It is a major market. Another, however, suggested that cotton would not be price competitive in the nonwoven market.
The issue, I would say, is not that per se. But rather, if cotton is not competitive, then what are the plans to see that it becomes competitive and take that 40-plus million bale equivalent market from chemical fibers? Maybe, just add another one million more bale equivalents in demand. That is another million acres of cotton.
The range continues with more attempts to break higher.