Shurley: A Different Tone Controls the Market
December 21, 2020 Last week was the best week news wise for cotton in quite a while. USDA’s monthly production estimates finally showed the lower U.S. crop that many have long said was out there. Supply/demand projections also showed a rebound in world use/demand.
The nice build-up in prices, especially over the past six weeks, has been due to increased optimism in demand side factors. Now, we also finally have validation of a smaller than previously expected U.S. crop and improved demand estimates to boot.
December’s USDA numbers (in combination with a good export report) finally gives the market more confidence that those expectations might be reality. In other words, the stage now seems set for a new, more optimistic tone to the market.
March futures closed above 74 cents for the first time last week. The 73 to 74 cents area has been seen as an important hurdle (target). Prices (March futures) gained 2½ cents for the week, aided by a 107 point gain on Dec. 9 prior to the reports, followed by a 121 point gain after the report was issued on Dec. 10.
In summary, the monthly USDA 2020 crop year estimates for December included:
- The U.S. crop trimmed by 1.14 million bales from 17.09 to 15.95 million bales. The reduction was actually more than what had been anticipated. Notable reductions included 15% for Texas, 12½% for Louisiana, and roughly 10% for Georgia, Mississippi, Florida and Alabama.
- Smaller crops are now also projected for India and Pakistan. China is unchanged from the November estimate.
- Projected U.S. exports increased from 14.6 to 15.0 million bales.
- U.S. projected ending stocks were lowered 1.5 million bales.
- World use increased 1.58 million bales from the November estimate – revised higher for India, China and Pakistan.
The export report for the week ending Dec. 3 showed strong sales and shipments – both the second highest of the marketing year thus far. Major buyers were destinations in China and Pakistan. Major export destinations were also China and Pakistan.
The mood and tone seem optimistic. But we must watch and consider carefully how higher prices might impact exports and use.
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