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Cleveland: Yields, Quality, Consumption Still Rising

The big BEAR crop in the U.S. and around the world just cannot push New York lower. The trading range continues, but most of the activity is occurring in the upper end of the range at 67-70 cents. Nevertheless, the 65 -70 cent +/- range has held forth for months.

The market has endured three hurricanes, an early freeze, a basketful of media reports of ending doom, and comments of weak economies around the world. Yet, world cotton consumption just keeps growing and carryover just keeps falling. Granted, the northern hemisphere crop has been slow to enter the 2017 marketing stream, and that has supported prices. However, the crop is now past peak harvest, and mills are finding its quality higher than expected, especially given the weather anomalies.

Reports of unbelievable yields are being reported in West Texas – impossible, one might say. Irrigated West Texas yields are very comparable to Australian yields. Quality…well, West Texas cotton will not move in the world market just as a high quality cotton, but rather as a premium high quality cotton.

Switch to the Mid-South. There are more than a few bales with a 41 staple length. Remember, the staple length for is Pima is 44. Thus, the U.S. seed companies have far exceeded – even over excelled – in their commitment to providing the U.S. grower with fiber genetics that are the most sought after in the world by big brand retailers that want to deliver a high quality product to the consumer.

The polyester retailers can deliver a pretty product (even a football uniform that can’t be tackled), but they do not and cannot deliver a high quality garment or apparel product. Plus, the polyester retailers carry the heavy burden of contributing to environmentally-unstable fabrics, along with the ostrich in the sand approach to pollution.

West Texas truly has no alternative crop, if it ever did, and the U.S. can now claim some positive comparisons with the world’s finest – the Australian crop. Yields of 7-8 bales per acre have been routinely reached over the past five years. On-farm yields are now surpassing 10 bales per acre. Yes, double digit bale per acre yields.

Too, it was not that long ago that the Mid-South prided itself in producing SLM 1-1/16 inch cotton. Of course that is still the base grade, but is viewed today in the world textile industry as little more than low grade cotton.

U.S. export sales continue to defy odds, as net weekly upland sales advanced 209,500 RB and Pima sales were 19,100 RB. Primary buyers were Pakistan, China, Vietnam and Turkey. India’s reluctance to enter the export market (remember, India is on the verge of becoming the world’s largest producing country), drove Pakistan to the U.S. for cotton and represents a bonus for U.S. sales. Additionally, India is also buying cotton from the U.S. again this year. U.S. export commitments are nearly 40% ahead of the pace set last year.

For the third consecutive week, shipments were minimal, coming in at 86,700 RB. Shipments are well behind the pace needed to reach the USDA estimate of 14.5 million bales. The dilemma is twofold. First, the U.S. crop is late so merchants have scrambled to get their hands on cotton needed to meet required delivery dates. As such, the market invert has continued, and merchants have had to pay a bit more for immediate shipment than planned.

However, there is some uncertainty regarding the availability of Indian exports. The Indian government announced three weeks ago that it would pay a premium for cotton, effectively shutting off Indian exports and sending New York nearly 300 points higher. The Indian cotton situation is understandably tethered to the Indian political situation. A realistic reading of both will be imperative. Should India reverse its implied limited export ban, then New York would immediately slide some 300-400 points.

All of this becomes more convoluted when considering that Indian mills are complaining about the inability to obtain needed inventory of raw cotton stocks, and USDA estimates include a record inventory of raw cotton stocks in India.

Back to USDA, the next world supply demand estimates will be released on November 9. NASS will be in the crosshairs, as its yield surveys have been forced to battle insurmountable odds. The current crop estimate of 21.1 million bales will likely drop some 300,000 bales – but again, there are some impressive yields in West Texas. The Mid-South and Southeast are expected to be marginally lower.

Likely, the losses due to Harvey will finally be tabulated, although the December report may well contain some Harvey adjustments. Look for exports to remain unchanged since shipments remain low. World production could drop as much as 1-2 million bales, and world consumption could be as much as one million bales higher. World carryover is coming down – whether it be this month or in later months – as much as 3-4 million bales. Mills are all but bragging about demand. Plastic fiber prices are increasing, including polyester, nylon and tencel.

Now the negative news. Denim, defined by the various dictionaries using the word “cotton,” is now coming under rapid attack by the polyester industry. The dairy industry went through a similar battle with alternative milk. However, dairy did not fight back for five years, well after the cow was out of the barn. After losing 15% of their market share, they began to fight back. The alternative milk industry will have 25% of the market share next year.

Of course, such a loss would be a double whammy for cotton, since dairy cows eat cottonseed, and the dairy industry is a major buyer of cottonseed. The alternative milk industry is projected to gain 50% of the milk market within 10 years. Thus, cottonseed demand is shrinking.

The narrow 67-70 cent trading range continues with a slight upward bias. Demand supports higher prices, but only marginally higher.

If cotton can somehow muster its strength to maintain some market share, the future is very bright. Yields are climbing closer to three bales per acre. Mills, under current conditions, are willing to pay as much as 75-77 cents for cotton. Promotion with and through the big box retailers is a real key to The Fabric of Our Lives.

Give a gift of cotton today.

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