World cotton stocks to decline between 2.5 and 3mn bales

16 Oct '06

3 min read

It is this change that the market sensed, and had been trading for the past three weeks as it slid below 50 cents.

The U.S. crop was increased 314,000 bales, to 20.66 million bales, a result of the extended growing season the Midsouth. Domestic mill use was lowered 200,000 bales to 5.3 million and exports were also lowered 200,000 bales to16.20 million.

The Central Asian crop was increased 440, 000 bales and was placed at 8.37 million bales. Yet, it was the forecast surrounding China that contained the significant changes. Chinese production was increased to 29.0 million bales, up 1.0 million from last month.

Further, Chinese consumption was decreased to 50.0 million bales, down 1.0 million from last month. Beginning stocks in China were increased by 2.35 million bales and are now forecast at 15.66 million bales.

Finally, reflecting the larger than expected crop, Chinese imports were lowered 1.0 million and are now forecast at 18.5 million bales.

With these changes already in the minds of traders, the market is now left waiting for either time or new production/consumption data to determine price direction. With world consumption surpassing world production by 4.79 million bales (foreign consumption exceeds foreign production by 20.15 million bales), and with cotton prices below 50 cents, the market should be expected to respond to its normal seasonal tendencies.

Namely, we can expect the market to potentially drift slightly lower into November, give and take through most of December and then rise gradually in early January.

After the expiration of the December futures contract the market will attempt to work either side of the 55 cent level.

The potential for increased feed grain and wheat plantings in 2007 will also support cotton prices as both the U.S. and other world cotton producing countries will reduce their area seeded to cotton.

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