Lower world cotton crop may lead to surged demand

08 Sep '07

3 min read

Sales during the current week, to be reported next Thursday, appear to have been active, but a bit slow. Mills are voicing their opinion that prices will slip a bit lower-down to and maybe below 58 cents. The past month saw mills as very aggressive buyers at that level as most feel that the 57-58 cent level will be the market low for the remainder of the season.

Thus, at the current 60 cent level, mills have continued to purchase, but their aggressiveness has slowed. Any indication that next Wednesday's USDA report will include a smaller world crop will force mills back to a more aggressive buying mode.

It is expected that the U.S. crop will be some 200,000 to 400,000 bales lower that the August 18.3 million bale estimate. Additionally, weather problems in other countries can likely make for a reduced U.S. crop. Another wild card is the 2006 Chinese crop.

Some estimates from Chinese reporting bureaus have the crop as much as 1.5 million bales larger than USDA. USDA has steadily increased its estimate of last year's Chinese crop while others have long had that crop larger than the current USDA estimate. Should USDA raise last year's Chinese crop it would likely lower its estimate of 2007-08 Chinese imports.

With Indian new crop and some U.S. new crop now coming to market, mills will likely be able to wait out another drop to 58 cents. Yet, extreme caution is urged with respect to the September 12 USDA report. A measurable decline in world carryover would keep the December contract above 60 cents.

O.A. Cleveland

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