Expect the Best, Prepare for the Worst

I will in no way throw cold water on a fire that’s burning brightly. But there are some things we need to watch with caution, even in the face of critically tight cotton supplies in the U.S., and shrinking world supplies.

Since USDA and others projected that the U.S. has essentially run out of old-crop cotton, the ICE December ‘10 contract has lost over 5 cents. I think that’s because of increased acreage and projections for the largest cotton crop since 2005. That year we produced a crop of 23.26 million bales, but did it on almost 14 million acres. This year, we’re projected to produce almost 17 million bales (and that could be low if current weather conditions hold) on 10.9 million acres.

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Our stocks-to-use ratio in 2005 was 26 percent. It’s now down 16.67 percent, and adverse weather in any part of the major cotton-producing areas could drop that ever further.

They say expect the best, but prepare for the worst, and the factors that bear watching are the economic indicators that could drastically restrict demand:

  •  The latest housing starts report from the Census Bureau showed that they are down 63 percent from 2004, and have been relatively flat for the past two years. This is despite the homebuyer’s tax credit.
  • Consumers are concerned again that we are not moving out of a recession, and in fact, we could be in for a double dip. The Consumer Confidence Index, says CNN, “cratered” in June, falling from a score of 62.7 in May to 52.9 in June.
  •  CNN also says the June jobs report could show a loss of 100,000 jobs, “after the temporary Census hiring led to the biggest job gain in 10 years during May.”
  •  The S&P 500 is down 8.3 percent for the year, and the Dow has lost 7.11 percent.

From here until harvest, nearly everything is off the table and it’s going to be a crap shoot.

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