Interviews
NYK futures under pressure this week
18 Aug '06
3 min read
Last Friday's surprisingly bearish USDA crop report has put a lid on the market, at least for now. Even though the crop estimate of 20.4 mio bales was 100'000 bales less than in July and 3.5 mio bales below the record output of 2005/06, it was disappointing against much lower expectations.
This is the worst reading in the last ten seasons! The only season that came close to that was 1998/99, when 33 percent were listed as poor or very poor and the crop eventually yielded just 625 lbs/acre.
This is certainly possible, but not likely in our opinion. What makes more sense to us is that the methodology the USDA uses to establish yield, which works quite reliably most of the time, has produced an inaccurate result due to the irregularity of this crop.
The bearish crop report has given mills all the more reason to adhere to their hand-to-mouth buying pattern and as a result export sales have remained rather subdued.
Total commitments in the new season amount to just 2.0 mio statistical bales so far, which compares to 4.8 mio bales a year ago.
In other words, the US would have to sell another 15.0 mio bales between now and the end of July 2007, which is around a million bales more than what was sold during the same time frame last season.
Assuming that mill demand remains strong, a reduction in US exports will have to be made up by other origins, which in turn should keep the A-index well supported.
A strong A-index on the other hand translates directly into firm US prices, since they are based on the AWP. It could really turn into a vicious cycle for US cotton, analogous to the cat chasing its tail.
This is the worst reading in the last ten seasons! The only season that came close to that was 1998/99, when 33 percent were listed as poor or very poor and the crop eventually yielded just 625 lbs/acre.
This is certainly possible, but not likely in our opinion. What makes more sense to us is that the methodology the USDA uses to establish yield, which works quite reliably most of the time, has produced an inaccurate result due to the irregularity of this crop.
The bearish crop report has given mills all the more reason to adhere to their hand-to-mouth buying pattern and as a result export sales have remained rather subdued.
Total commitments in the new season amount to just 2.0 mio statistical bales so far, which compares to 4.8 mio bales a year ago.
In other words, the US would have to sell another 15.0 mio bales between now and the end of July 2007, which is around a million bales more than what was sold during the same time frame last season.
Assuming that mill demand remains strong, a reduction in US exports will have to be made up by other origins, which in turn should keep the A-index well supported.
A strong A-index on the other hand translates directly into firm US prices, since they are based on the AWP. It could really turn into a vicious cycle for US cotton, analogous to the cat chasing its tail.
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