Cotton production forecast stands at 17.5 mn bales

24 Jul '07

4 min read

Rainfall and Soil Moisture. The U.S. Drought Monitor (based on data through early July 17) still shows moderate to exceptional drought centered on the Tennessee River Valley states and dipping into western Georgia, with an outer tier of states (Northeast Arkansas, Mississippi, the Carolinas, and Virginia) that remain in some stage of dryness.

Recent rains have continued to shrink the overall extent and severity of drought conditions, compared to previous weeks. The cumulative rainfall map through Sunday July 22 shows rainfall coverage with significant accumulations in southwestern Oklahoma and across the lower Gulf Coast from Florida to South Texas.

Crop Condition. Reported U.S. crop condition ratings for the week ending July 15 were little changed from the previous week. The latest 2007 ratings are right in the middle of the weekly trends of the previous four years.

Several years(2004 and 2005) with higher ratings trends, and one (2006) with lower ratings trends, all resulted in U.S. average yields exceeding 800 lbs/acre.

So perhaps these crop condition indices provide support for the current USDA forecast of an 800 lb/acre average yield for the 2007 crop. Regional reports from West Texas (check out my Extension colleague Jay Yates' blog) give about the same picture as reflected by the national crop condition ratings.

Demand Assumptions. A big assumption underlying the 2007/08 outlook is the U.S. having 17.0 million bales of exports in 2007/08. The arguments in favor of USDA's view are that 17 to 18 million bales lies within the upward pointing five year trend projection of U.S. exports, and also that the projected foreign stocks-to-use ratio will likely continue below 40%, continuing a three year trend of declining foreign stocks.

The point to make here is that the USDA 2007/08 outlook involves assumes a relatively high level of demand, which focuses my attention on the risks of not getting there. That would set up a repeat scenario to last year: 1) a large Chinese crop starts coming on by summer's end, choking off Chinese imports of U.S. cotton, 2) this situation is bolstered by Indian exports later in the fall, and 3) decent U.S. production implies healthy 2007/08 carryover stocks.

A combination of these factors would pressure Dec07 and Mar08 futures prices. These factors were among the points of discussion at the annual Cotton Forum in New York on July 13.

World Forecast. In terms of the World new crop supply/demand picture, the USDA July WASDE report forecasted a reduction in world ending stocks-to-use down to just under 40%. This is suggests that the A-Index could continue at a high enough level to have negligible to zero LDP values.

Texas A&M University

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