World Cotton Production 2007 Projected at 116.00mn Bales
Source: O.A. Cleveland Date: 2007-05-15
New York cotton futures came under pressure at week’s end as the Friday release by USDA of the world supply demand report verified the long held view for both a further decline in both U.S. exports and domestic consumption. Friday’s activity brought about a new life of contract low in July. Yet, the market continues its attempt to hold the current level as exports have increased inline with both Chinese purchases as well as unseasonably very large buying by other traditional U.S. markets.
International mills had sensed the market’s attempt to hold the prior lows and made volume purchases at abnormally cheap prices. While recent weekly export sales had rocketed higher, the prior eight and one half months had anemic sales volume. The demand for cotton that I had felt would surface below 50 and 52 cents only surfaced near the 47-49 cent level. Nevertheless, with increasing U.S carryover, the old crop July contract has very questionable upside momentum above 50 cents. The new crop December contract remains under pressure from increasing U.S. and world carryover as well as generally good crop development across the Northern Hemisphere.
USDA’s May world supply demand report increased the U.S. crop 20,000 bales to 21.6 million. Domestic consumption was lowered 50,000 bales to 4.9 million and exports were lowered 250,000 bales to 13.5 million. Thus ending stocks were raised 300,000 bales to 9.5 million. Hopefully, these estimates will prove to be correct, but there is considerable evidence that could justify lowering domestic consumption another 100,000 bales to 4.8 million.
Additionally, as we stated last week, export shipments remain far-far behind the level to reach the USDA estimate, now at 13.25 million bales. There remains much work to do just for U.S. exports to reach 12.75 million bales, and if weekly shipments do not soon rise above 400,000 bales then U.S. exports could fall closer to 12.5 million.
World production was raised 350,000 bales to 117.1 million and world consumption was raised 250,000 bales to 122.2 million. However, because USDA increased its beginning stocks as of August 2005, world ending carryover for the 2006-07 marketing year (as of July 31, 2007) was raised 2.82 million bales to 55.4 million. This then became the explanation for the market’s dive into the 40’s.
May was the first month for which USDA released its first subjective estimates for the 2007-08 marketing year. The U.S. crop was projected at 18.8 million bales, based on an 820 pound yield. Domestic consumption was projected at 4.4 million, but exports were projected to climb to 17.5 million, sending U.S. carryover down to 6.4 million bales.
World production for 2007 was projected at 116.00 million bales, 1.1 million below 2006 production. World consumption for the 2007-08 marketing year was projected to increase to 127 million bales, a very strong 4.8 million bale increase. USDA projects China to account for about 85% of the increase in world consumption.
The report continues to portray bearish news for the old crop, although is difficult to think the July contract could slip more than 200 points, if any. However, the silver lining in the report was for the new crop. However, the silver was not too shiny as the projection for world carryover implies a world stocks to use ratio of over 40%.
It is difficult to project New York trading above 60 cents for very long with a 40 percent world stocks to use ratio. The current projection for the 2007-08 stocks to use ratio for the U.S was about 35%. That’s offers a hint of support for a trip to 60 cents, albeit a long trip, but then Mother Nature must have her say.
