Shurley on Cotton: June Numbers Leave Bulls in the Corral for Now

By Dr. Don Shurley

Cotton growers are optimistically waiting for prices to break to the upside. But patience is wearing thin.

There are factors in play that are potentially “bullish” that could take prices higher. But thus far, however, these things have not budged the market, and new crop prices remain stuck in the same narrow four to five-cent range they have been in for the past eight months.

The June 10 USDA production and supply/demand numbers were thought to possibly begin to reflect some of these issues, but such is not the case. Based strictly on current news and what may eventually play out or not, I believe price direction could likely be determined within the next month. During this time, the first USDA estimates of actual acreage planted will be released (June 30), and the July production and supply/demand numbers will again be an opportunity to make any downward revisions if there are to be any.

In the meantime, producers can only be patient and wait it out or – if patience is wearing thin and the risk is getting too much – be prepared to hedge a portion of the crop using Puts or by contracting.

The recent USDA numbers leave the 2015 crop estimate and all U.S. numbers the same as in the May report – 9.55 million acres planted, 8.6 million harvested, yield of 809, projected exports at 10.7 million bales, and beginning stocks and ending stocks both at 4.4 million. It has been widely anticipated that actual acreage planted could be less than 9.55 million this year, and that projected exports from the 2014 crop year would increase and thus drop 2015 crop year beginning stocks perhaps below four million bales. So, we will have to wait until the acreage numbers come out on June 30 and then the July 10 supply/demand report to see if revisions will be made then.

Here’s an important point – acreage could end up less, but yield better than currently estimated. So, there’s a chance the crop could still be on par with or even higher than the current estimate of 14.5 million bales.

In terms of foreign numbers, the June 10 report also made little to no change for the 2015 crop year. China is still pegged at 27 million bales – down three million bales from last year. China’s expected imports and Use were also unchanged from the May report. The India crop for 2015 remains at a projected 29.5 million bales – the same as 2014. The India government forecasts the monsoon season as “deficit.” If not now, the India crop estimate could eventually be lowered in future reports.

This could be a significant event, because India is now the world’s largest cotton producer and a major competitor for the U.S. in exports. India exports for 2015-16 are projected at five million bales, compared to 4.1 million for the 2014 crop year.

As of June 7, the U.S. crop is 81 percent planted, compared to 89 percent normal for that date. This is only eight points behind normal, compared to 14 points behind normal the previous week. Progress has been made on “catching up,” but that could be misleading. Perhaps we “caught up” because less acreage went to cotton and was shifted to another crop. But Texas is still 11 points behind normal, and Oklahoma is still 27 points behind. Georgia is pretty much caught up.

 

Shurley is Professor Emeritus of Cotton Economics, Department of Agricultural and Applied Economics, University of Georgia