Consumption: It’s About China
March 5, 2009 U.S. market conditions are obscured by a combination of political and supply and demand forces worldwide. Foreign crop size is still unclear for the 2006/07 season and even cloudier for the next year.
Despite strong world demand, U.S. futures prices have been sluggish since mid-year. Yet, November USDA projections indicate a 21-million-bale deficit gap between foreign production and consumption. Most of the large gap is production versus use in China.
China has imported only 651,000 bales, four months into this season, from the 2006/07 U.S. crop. In 2005/06, they imported 19.3 million bales, of which 8.8 million were from the U.S.
In early 2007, the Chinese are expected to purchase a substantial amount of this year’s U.S. crop. Also, there is some price support resulting from slightly less stocks in foreign, import and export nations. But, partly offsetting are plentiful U.S. stocks.
A big drawback to U.S. cotton prices is that they must fully reflect all shipping costs to meet global competition. That means until the “A” Index, which has been trading mostly below 60 cents per pound for two years, increases to the mid-sixties, December ‘07 futures will likely remain several cents under 60 cents. With the “A” Index quality base of 31-35-3 leaf and the lower base of 41-34-4 leaf for U.S. futures, the price received by growers will trail the “A” Index by some 12-16 cents. Clearly the “A” Index must go up for the U.S. price to increase.
Growers who have placed their 2006/07 cotton under the CCC loan program should watch for short-term futures price rallies to negotiate equity offers. The electronic cash markets will be helpful in keeping abreast of equity values. Growers need to realize that because of the new changes in the CCC loan program, equity values will be adjusted to reflect the added costs of redeeming cotton from the loan.
A small rally in December ’07 futures is possible next spring to encourage growers to plant enough acreage to cotton for a 20-22 million-bale crop. Higher corn, soybean and wheat prices will likely attract 1-2 million acres away from this year’s 15.28 million acres of cotton.
Growers have an opportunity to bargain for a slightly higher price for cash cotton by grouping similar qualities together before sale. Many buyers are seeking certain qualities to fit their customer’s needs.
Prices Fall In China
China’s National Cotton Monitoring System launched a sample survey among 3,360 growers covering 16 provinces in the country, which showed a better crop condition and higher yield than last season. Production is 2006 is expected to set a record. With supply higher than expected, China’s domestic cotton prices have fallen.
The main reasons for lower domestic cotton prices are because new domestic has come to market in large volumes, and cotton-dealing enterprises are in a hurry to sell the cotton, hoping that it will reduce their risk.
Eller Promoted to International Position at USDA
J. Burton Eller, Jr. has been named deputy under secretary for marketing and regulatory programs (MRP) at USDA. Eller will assist in the management of USDA’s MRP mission area. MRP agencies are active participants in setting national and international agricultural standards. USDA agencies that make up the MRP mission area include Agricultural Marketing Service Animal and Plant Health Inspection Service, and Grain Inspection, Packers, and Stockyard Administration.
IFCP Selects Officers
The International Forum for Cotton Promotion (IFCP) elected new officers at the organization’s annual business meeting, held in Goiânia, Brazil, at the 65th ICAC Plenary Meeting. Chairman for 2006-2007 is Mark Messura of Cotton Incorporated, Vice Chairman is Zbigniew Roskwitalski of Gdynia Cotton Association and Treasurer is Nayan Mirani of SCIL Capital India Ltd., representing the East India Cotton Association. Ascending to Immediate Past Chair is Dr. Sebahattin Gazanfer of Taris, representing ITKIB. Jeffrey Silberman will serve another term as Executive Director.
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