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USDA WASDE cotton forecast & caveats of 2007/08

Jul '07
Forecast: The USDA June 29 Acreage report painted a more bullish picture for new crop cotton prices. The USDA forecasted 11.1 million acres of all cotton planted in the U.S. which, if realized, amounts to a 28% reduction from 2006. The relatively low planted acreage implies 2007 U.S. production of around 17 million bales and possible 2007/08 ending stocks under 5 million bales.

The bottom line could be a 2007/08 ending stocks-to-use ratio of 22.4%, which is a dramatic improvement over 2006/07. It is also a moderate improvement over 2004/05 (with 26%) and 2005/06 (with 25%). So, given the current numbers, there is a supply/demand rational for the the trading range of Dec07 futures to be somewhat better than recent years, e.g., a more sustained period in the low to mid 60s).

Price volatility (probably to the upside) is likely given the trend of tightening foreign stocks which could lead to price spikes given the perception of supply problems. Furthermore, the low planted acreage heightens the focus on U.S. yield potential, as predicted by weather and crop condition.

Rainfall and Soil Moisture: The U.S. Drought Monitor (based on data through June 24) still shows moderate to exceptional drought centered on the Tennessee River Valley states, with an outer tier of states (Louisiana, Arkansas, Missouri, the Carolinas, and Virginia) that are abnormally dry. Seven day cumulative rainfall totals through July 1 highlight significant accumulations in North Central Texas, Oklahoma, Kansas, Missouri, and across Tennessee to South Carolina.

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