One Market Certainty: Cotton Consumption Declining

The cotton market struggles to find news, and some have given up on cotton fundamentals and have been reduced to discussing the respective conditions of the world and U.S. economies.

Before focusing on cotton, let’s just remark that U.S. consumer confidence is at an all-time high. Too, as was stated last week, the consumer continues to be the big engine pulling the U.S. economy, and there is nothing in the foreseeable future to derail that. Yet, as judged by world cotton consumption, some foreign economies are failing to clear expected economic hurdles, and economic growth has waned, turned negative or have trended lower.

Unfortunately, the cotton market will have to face this from its demand side of the price equation. U.S. consumer spending on apparel and textile goods continues to expand. And while that is positive for cotton, most of the retail growth is benefiting polyester and other synthetic fibers – not natural sustainable fibers. The U.S. consumer simply has not been educated as to the environmental, quality and personal benefits of sustainable fibers produced by Mother Nature.

Nearing the weekly market close, cotton futures prices were up some 70 points on the week after being down 192 points the prior week. The bears still rule the near term, intermediate term and long-term outlook. Thus, it is difficult to find anything other than black paint to stroke the brush with.

USDA will provide us with another supply demand report on September 12, and the crop enumerators are in the field assessing crop conditions. The effects of Hurricane Dorian will not be available. With some luck, the Georgia/Florida/South Carolina crops will be spared any damage, but early ideas are that Southeast Georgia and Southwest South Carolina will see heavy rains. Regarding the “knowns,” Texas did receive very beneficial moisture, especially District 2S. For most growers, it was the “million dollar” rain.

My take has been that the U.S. crop was declining despite the highly impressive seed genetics we have seen the past three years. However, most are now suggesting the USDA crop estimate of 22.5 million bales will be increased. Whatever the production level is, there is one certainty – cotton consumption is declining.

U.S. export sales have been hard to come by the past two weeks despite life of contact price lows. Additionally, export shipments were desperately low this past week. Cancellations have been limited so far, but some 1.8 to 2.3 million bales are thought to be in the cancellation pipeline.

USDA is currently carrying U.S. carryover at 7.2 million bales and exports at 17.2 million. We expect exports to fall woefully short of that goal. The U.S. may be lucky to export 15.4 million bales – down 1.8 million from the current estimate. The entirety of this decline will be switched to carryout, ballooning U.S. carryover to 8 million bales. Some are even trying to make a case that U.S. carryover will rise to 8.5 million bales or more.

While I would like to find a nicer way to put it, I can’t. A carryover of 8 million bales likely implies prices in the 45-52 cent range, I fear. Consumption has simply fallen out of bed. Period. For now, low prices will not bring cotton consumption back, as the mill delivered price of polyester is still at least some 30% below the delivered price of cotton.

That is, even at these prices, cotton is considered by the mill to be expensive.

The 57-60 cent trading range should continue to hold. But as we move closer to the September USDA supply demand report, look for the 57-cent support to fail as the market seeks out a low of 52 cents.

Give a gift of cotton today.