What Do USDA’s Old and New Crop Projections Mean?
On May 10, USDA released its monthly crop production and supply and demand estimates. Each year, the May report contains the first projections for the upcoming new crop year. Here is a summary of major points for both 2017 old crop and 2018 new crop.
Old Crop (2017) Revisions/Updates
- The 2017 U.S. crop was revised down to 20.92 million bales – down 340,000 bales from the previous estimate.
- U.S. average yield was raised from 899 lbs per acre to 905 lbs, but acres harvested were reduced 249,000 acres.
- Exports for the 2017 crop year were raised 500,000 bales to 15.5 million bales.
- World use was projected at 120.74 million bales – 350,000 bales higher than the April estimate. But worth noting, this just gets us back to near the March estimate of 120.79.
New Crop Situation
- The 2018 U.S. crop is projected at 19.5 million bales – 4½% less than last season.
- Among countries considered to be major exporters, production is forecast to increase only slightly.
- China’s production is forecast the same as 2017.
- U.S. exports are projected at 15.5 million bales – the same as the 2017 crop year.
- World use is projected at 125.44 million bales – 4.7 million bales or 3.9% higher than this season.
- Compared to this season, use is projected to increase in China, India, Vietnam, Bangladesh, Turkey and Indonesia.
- Imports are projected to increase for mills in China, Indonesia, Bangladesh and Vietnam. Chinese imports are projected to increase from 5.1 million this season to 7 million next season.
- China is expected to further reduce stocks by 7.55 mill bales.
Crop year export sales for 2017 currently total 17.1 million bales. Shipments total 10.98 million bales as of May 3. For the past four weeks, shipments have averaged 454,400 bales weekly. This compares to 487,000 bales for the previous four week period.
For the 2016 crop year at this date, shipments were 74% of the total for the year. Shipments are currently at 71% of the new 15.5 million bale projection. Shipments must average approximately 361,600 bales per week to meet USDA’s projection.
The current pace of sales and shipments suggests that U.S. exports could eventually top 16 million bales. This would further reduce U.S. carry-in stocks to the 2018 crop year. This, combined with continued uncertainty about plantings and crop conditions, should provide support for December futures prices.
The U.S. crop projection of 19.5 million bales is spot on and was expected, based on March Prospective Plantings of 13.47 million acres and average yields and abandonment. The first estimate of actual acres planted will not be out until the end of June. Actual acres planted could be closer to 14 million.
Prices over the next month will continue to be controlled largely by crop conditions, demand and exports. West Texas has been dry, and so has the Southeast. Rainfall in amounts anywhere from an inch to over 3 inches is expected this week over the Southeast especially.
This much needed rainfall will come just in time for many producers. As of May 13, most states are ahead of normal in planting progress.
As far as the upcoming 2018 crop year is concerned, the May report seems to be supportive for now. Of course, the U.S. crop is TBD. Given all the tariff talk and threats, another year of exports at 15+ million bales is a good sign. We can credit this to the forecast of demand growth and expanding markets like Vietnam and Bangladesh, where sales can help offset any loss of market in China. A recent article outlines the tariff issue and impacts on Georgia row crops.
If world demand/use for 2018 of 125.44 million bales is realized, this would be the highest level of use since the 2006 crop year and a record amount. Use would exceed production by 4.25 million bales, and 2018 would be the third year out of the last four that use has exceeded production.
It has been said all along that demand is the engine that drives the cotton train. Without demand/use, there is less need for cotton production and the infrastructure that supports it. Thankfully, whatever the reasons are – and there are several of them – demand is back.
Technically and fundamentally, this market currently has plenty of support. Any price weakness that could develop should have support at several levels.
Prices have trended down and tested the water just below 80 cents. They have moved back above 80 cents – barely – and 85-cent talk is now rampant. But, the 80-cent area has not quite proven itself solid yet. Could prices move higher? Yes. If I’m a grower, I want some of that. At the same time, if I’m less than 30-40% priced, I’d get to that level first at current prices rather than worrying about 85 cents.