Interviews
Cotton market moves higher
12 Feb '07
3 min read
World carryover was increase by 660,000 bales, climbing to 52.92 million bales, nearly three million above that forecast just four months ago. World production was decreased by 160,000 bales, falling to 116.65 million and world consumption was raised 180,000 bales, climbing to 121.35 million bales.
Principal changes were made by USDA in its Chinese cotton balance sheet. Chinese production was raised 150,000 bales, to 30.9 million bales as we had cautioned two months ago. This, the third consecutive monthly increase in the size of the Chinese crop was responsible for USDA lowering its estimate of Chinese imports by 500,000 bales, down to 15.5 million bales. While US exports fell over twice that amount-1.2 million bales-the full decline can be attributed to the decline in the Chinese demand for US cotton (over the entire marketing year).
Picking up on the demand for high quality Indian cotton by China, USDA increased Indian exports by 1.0 million bales, a whopping 25 percent jump, up to 5.0 million bales. Indicating the strong demand by China for the Indian cotton, USDA lowered its estimate of Indian carryover a like amount.
Thus, a least for the 2006-07 season, the US is left holding the carryover bag for the world cotton industry. This scenario sets up a strong possibility that US cotton will be forfeited to the CCC and become government controlled stocks. Yet, a combination of a 2007 reduction in production and an increase in demand coming from China could avert such forfeiture.
Grower equities will be stymied by this set of events. Thus, the stage is set for the forfeiture of as much a 500,000 bales to USDA. This will actually result in a cost to growers as CCC will not pay compression charges. Warehouse compression charges for cotton in the CCC loan will have to be paid by the grower. Without some surfacing by demand in the coming months, and assuming strong yields for the 2007 crop, December futures will have a challenge to hold above 55-57 cents.
Principal changes were made by USDA in its Chinese cotton balance sheet. Chinese production was raised 150,000 bales, to 30.9 million bales as we had cautioned two months ago. This, the third consecutive monthly increase in the size of the Chinese crop was responsible for USDA lowering its estimate of Chinese imports by 500,000 bales, down to 15.5 million bales. While US exports fell over twice that amount-1.2 million bales-the full decline can be attributed to the decline in the Chinese demand for US cotton (over the entire marketing year).
Picking up on the demand for high quality Indian cotton by China, USDA increased Indian exports by 1.0 million bales, a whopping 25 percent jump, up to 5.0 million bales. Indicating the strong demand by China for the Indian cotton, USDA lowered its estimate of Indian carryover a like amount.
Thus, a least for the 2006-07 season, the US is left holding the carryover bag for the world cotton industry. This scenario sets up a strong possibility that US cotton will be forfeited to the CCC and become government controlled stocks. Yet, a combination of a 2007 reduction in production and an increase in demand coming from China could avert such forfeiture.
Grower equities will be stymied by this set of events. Thus, the stage is set for the forfeiture of as much a 500,000 bales to USDA. This will actually result in a cost to growers as CCC will not pay compression charges. Warehouse compression charges for cotton in the CCC loan will have to be paid by the grower. Without some surfacing by demand in the coming months, and assuming strong yields for the 2007 crop, December futures will have a challenge to hold above 55-57 cents.
O.A. Cleveland, USA
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