The current USDA estimate for Chinese imports this season is 13.0 million bales, which would be a little more than half of what China let in last season. Based on this number, stocks in the ROW would be increasing slightly over the course of the season and amount to 40.49 million bales at the end of next July. While this would be mildly bearish, it doesn’t justify much lower prices, especially when we consider that acreage is probably going to drop quite a bit in view of much more lucrative grain and soybean prices.
One origin to keep a close eye on over the next couple of months is India. Although rainfall has recently improved and raised farmers’ hopes, meteorologists are warning that strong El Nino conditions are likely to disrupt the monsoon’s progress. The chief forecaster of the India Meteorological Department stated that the monsoon might enter another weak phase leading to lower precipitation in late August and particularly in September, which would be detrimental to crops. A smaller crop in India would likely take that origin out of the export competition, along with Brazil, which should see fewer exports this season due to smaller plantings. This would establish the US as the preeminent exporter going forward and enable it to dictate prices.
So where do we go from here? Based on what we know today, we believe that prices will be relatively well supported over the next couple of months, as physical supplies remain tight. Once new crop becomes available, we could see some price pressure develop in the October/November time frame, but starting in December the market will already begin to focus on new crop plantings, which should act in support of the market. A lot will of course depend on what China does over the coming months, but unless China shuts its doors to imports in a big way, prices in the rest of the world should remain relatively well supported. From a longer-term perspective, we feel that dips into the 65-70 cents price window should be bought!
Plexus Cotton Limited