Shurley: The Long March to 68. Now What?
October 12, 2020 This past week, cotton prices inched ever closer to the 68 cents area – breaking above the 65 to 67 cents range that prices have been in for the better part of last month.
The move closer to 68 was made on expected crop damage from Hurricane Delta and anticipation that USDA projections for October would show an already reduced U.S. crop compared to the September numbers.
Futures markets move on expectations and then a potential secondary move based on how reality stacks up against what was expected. The October USDA numbers should be supportive of this week’s action, but Hurricane Delta weakened and tracked further west from expectations earlier in the week, and the report estimates show the crop still above most industry expectations.
In summary, USDA’s October estimates show:
- The U.S. crop was reduced by only 15,000 bales from the September estimate.
- The projected U.S. average price to be received by farmers for the 2020 crop was increased by 2 cents per lb.
- Yield was reduced in many states but was increased in Texas and Georgia, the two largest producing states.
- S. exports for the 2020 crop year remain projected at 14.6 million bales – the same as the September estimate, but notably almost 1 million bales less than last crop year.
- World production was reduced almost 1 million bales with most accounted for by Pakistan and Africa. Chinese production was unchanged from the September estimate.
- World Use (demand) was increased 1½ million bales, accounted for by increases in India and China.
- Projected stocks on-hand at the end of the 2020 crop marketing year were reduced 2.7 million bales from the September estimate but are projected to still be a burdensome 101 million bales. Ending stocks for China were reduced 500,000 bales.
Hurricane Delta was expected to produce its heaviest rainfall across most of Louisiana, southeast Arkansas, and central and northern Mississippi where 3 to 6 inches or more was expected. The crop in these areas is over 90% open but mostly only about 20 to 30% harvested. Most of Alabama and Georgia were not expected to receive the heaviest rainfall.
Delta presents concerns over yield and fiber quality. The impact will show up in USDA November estimates. December futures closed Oct. 9 at 67.64 cents – off from the high for the day but up 1.82 cents for the week. That crop number was higher than expected and world supply/demand numbers were mixed. But the market could remain supported on November expectations.
The weekly export numbers were down, as both sales and shipments have slowed.
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