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NY Cotton Futures continue to head southwards
May '14
The market’s focus is squarely on West Texas at the moment, where anywhere from 2-5 inches of rain are expected across the main cotton areas between now and Tuesday.
This rain event couldn’t be timelier, since insurance deadlines are just a few weeks away, which means that instead of scores of abandoned acres we may actually see some green fields around Lubbock in a month from now. 
Although it is difficult to put a number behind the potential impact of a soaking rain in West Texas, we would probably look at a US crop of 15.5 million bales or more instead of just 14.0-14.5 million bales without any significant rain. 
However, while traders were mesmerized by weather forecasts, they seemed to disregard some other newsworthy items this week. What we are referring to are Chinese imports and US export sales, both of which looked rather supportive to us.  
Just a couple of weeks ago the USDA had raised its estimate for Chinese imports in the current season from 12.0 to 12.75 million bales. However, based on the fact that China imported another 1.03 million bales in April, bringing the 9-month total to 10.95 million bales, we believe that the USDA number is still too conservative. With three months to go and with Australian cotton now getting added to the mix, we feel that Chinese imports will reach at least 13.5 to 13.75 million bales by the end of July. 
What is interesting regarding the above is that the press continues to put a negative spin on Chinese import data, since they compare current numbers to the ones of previous seasons. Sure, China is importing less cotton than in the last two seasons, but that’s not relevant since the market is already aware of that. What the market hasn’t factored in yet is that China is once again beating estimates by a rather wide margin. Just two months ago the USDA had Chinese imports still at 11.0 million bales and is now forced to play catch up with the actual numbers, which continue to surprise positively. 
To put this into some perspective, while a 'million-bale rain’ in West Texas may boost rest of the world (ROW) inventories in the coming season, China is reducing current ROW stocks by absorbing a million bales more than what’s in the latest set of USDA numbers. In other words, we may not end up with more ROW stocks next season after all.

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