NY cotton futures trade by-directionally this week

14 Jul '06

6 min read

The demand side is a different story, with the USDA expecting mill consumption to rise from 116.8 to 121.8 mio bales, a healthy increase of 4.2 percent.

This would result in considerably reduced ending stocks of just 47.5 mio bales at the end of 2006/07, which computes to a rather low stocks-to-use ratio of just 39 percent, down from 45.4 percent in the current season. However, the market does not seem to believe in such an optimistic demand scenario at the moment, because the current price in the low 50's is more indicative of a balanced supply/demand situation than a 7.4 mio bales supply deficit.

World import needs are expected to remain virtually the same at 43.9 mio bales, but the difference to the current season is that the US has a 10 percent smaller crop and no help from the Step 2, which should make it more difficult to meet the current US export projection of 16.6 mio bales.

We also need to keep in mind that new crop sales amount to only 0.7 mio statistical bales at this point in time and that this year's export sales carryover is probably no greater than 1.7 mio bales. Adding another 0.4 mio bales of export sales until the end of July would therefore result in a starting total of just about 2.8 mio bales on August 1st, which is about 1.4 mio bales less than a year ago.

This means that the US will have to sell about a million bales more than in 2005/06 in order to meet this ambitious USDA export target. This seems unrealistic given the tough competitive environment US cotton is currently in.

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