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Uptrend in cotton prices continues this week
10 Mar '07
3 min read
While leaving production and domestic use unchanged from last month, USDA lowered its estimate of exports by 500,000 bales, and now projects U.S. exports for the 2006-07 season of 14.0 million bales. This was a direct correlation with sluggish U.S. sales to China as well as the overall reduction in China's demand for imported cotton. Thus, U.S. carryover stocks were raised to 8.8 million bales, near a quarter of a century high-actually a 21 year high. Additionally, domestic mill use remains questionable, thus carryover could balloon above 9.0 million bales.
While U.S. stocks have climbed to an unmanageable level, USDA lowered its estimate of world carryover stocks to 52.38 million bales, down 540,000 bales from its February estimate. However, both world production and world consumption were increased 190,000 bales. Thus, the estimated decrease in world carryover resulted from accounting updates rather than supply demand factors. USDA estimated that China would import 1.5 million bales less than expected in favor of using domestic stocks and reducing those stocks a like amount, thus drawing its carryover down to 13.51 million bales. This would represent a 27 percent stocks to use ratio for China.
A 27 percent stocks to use ratio for China, the worlds largest cotton user, dwarfing use by any other two countries combines, demonstrates that any production difficulty in Chinese production would skyrocket internal Chinese prices and create a significant import demand from China. Yet, international prices will continue to struggle. However, any problem that suggests the world crop could be even two percent lower than expected-or about 2.0 million bales-would boost the New York contract at least five cents higher.
For now the potential for a nine million bale carryover will keep a lid on the market. Grower equities will continue to be a minimum as CCC loan stocks are far too plentiful.
While U.S. stocks have climbed to an unmanageable level, USDA lowered its estimate of world carryover stocks to 52.38 million bales, down 540,000 bales from its February estimate. However, both world production and world consumption were increased 190,000 bales. Thus, the estimated decrease in world carryover resulted from accounting updates rather than supply demand factors. USDA estimated that China would import 1.5 million bales less than expected in favor of using domestic stocks and reducing those stocks a like amount, thus drawing its carryover down to 13.51 million bales. This would represent a 27 percent stocks to use ratio for China.
A 27 percent stocks to use ratio for China, the worlds largest cotton user, dwarfing use by any other two countries combines, demonstrates that any production difficulty in Chinese production would skyrocket internal Chinese prices and create a significant import demand from China. Yet, international prices will continue to struggle. However, any problem that suggests the world crop could be even two percent lower than expected-or about 2.0 million bales-would boost the New York contract at least five cents higher.
For now the potential for a nine million bale carryover will keep a lid on the market. Grower equities will continue to be a minimum as CCC loan stocks are far too plentiful.
O.A. Cleveland
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