NY cotton futures trade by-directionally this week

14 Jul '06

6 min read

Since US new crop will probably remain overpriced in the foreseeable future, mills may have to look elsewhere to cover their needs at the beginning of next season. According to the USDA, major exporters include the CIS (6.8 mio), West Africa (4.7 mio), India (4.0 mio), Australia (2.7 mio?), Brazil (1.5 mio) and Greece (1.45 mio).

This block of six origins accounts for 21.15 mio bales or roughly half of world exports, while US exports of 16.6 mio bales amount to 38 percent and the remaining countries combined add up to 5.65 mio bales or about 13 percent.

What comes to mind when we look at these potential exporters outside the US is the question of logistics? At 43.4 mio bales, world exports average about 3.6 mio bales per month, which is no problem if the US is in the driver's seat.

But what will happen when the US is shut out of the marketplace for a few months because of its uncompetitive price? Will the rest of the world be able handle this kind of volume? Until a few years ago this would not have been a major issue, because border-crossing trade was still well below 30 million bales as recently as 2001/02.

But with the preponderance of China we have seen world exports explode by 50 percent over the last five years and we therefore doubt that the necessary amount of cotton can be shipped without the help of the US.

Mills, who for the last couple of seasons have been able to sit back and wait for cheap offers to come their way, may have to re-think their strategy this season. The bulk of the US crop will be headed for the loan and without a 'rebate mechanism' (Step-2) it will be difficult for merchants to produce competitive US offers, at least at the beginning of the season.

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