During winter Extension meetings with cotton growers, I called it “breaking the cycle.” It’s been expected, and USDA’s numbers released (last week) are the first signs. Breaking the cycle is one thing that could help provide some support for this market.
The report contains the first US and World estimates for the 2015 crop year and the numbers are about as expected; some better than expected. For five consecutive years, 2010-2014, world production outpaced use. This is how/why the record level of stocks was created. For the 2015/16 crop year, we’ll break the cycle of overproduction.
These numbers will change, perhaps significantly, as we move forward in the season. As I said, this reversal has been expected and thus is likely already factored in to the market. More significant will be how what now actually happens compared to these estimates. If you look back at past years, you’ll see these May numbers are like my dove hunting skills—just throw the gun up and pull the trigger; you’re gonna miss it no matter what.
The 2015 US crop is estimated at 14.5 million bales—almost 2 million bales less than last year. This is offset by the fact that we’ll bring about 2 million more bales into the crop year on August 1 than we did back on August 1, 2014. The demand side for 2015/16 is expected to essentially be the same as 2014/15—exports at 10.7 million bales and US mill use up 150K bales.
World production is projected to decline about 8 million bales (6 million bales outside the US) while world usage is projected to increase almost 4 million bales. Use will continue to recover/trend up and outpace production by 4 million bales. World stocks, therefore, are projected to decline by 4 million bales. We’ve not heard in a while!
We’ll “break the cycle” but still have a very large level of old-crop stocks. Prices will key on the eventual impact of those stocks and other factors to change the numbers that were released today. What will US and foreign production actually be? What will be the resulting actual demand for US exports?
The China crop for 2015 is projected at 27 million bales—down 3 million bales or 10 percent from this season. China’s imports are projected at 6 million bales—down 1.7 million bales. China’s mill use is projected at 36 million bales—up 1 million bales. India production is projected down only ½ million bales from this season and their exports up 1.1 million bales.
New crop Dec futures continue to be mired in a range of roughly 63 to 67 cents, closing at about 65 today. Weather conditions this season are good/better, including Texas. Planting progress is being made but eight states including Texas and Georgia are still behind. It’s possible that we may not see a weather/crop conditions-related uptick in the market for a while yet. But things can and do change, sometimes quickly.