May 10, 2001

A bleak supply and demand outlook, coupled with the projection of the largest buildup in U.S. cotton stocks in 35 years, has maintained pressure on cotton futures prices this week. Trade buying helped slow losses, but with perfect crop weather and prospects for an 18.8-million-bale crop, traders said further losses might be ahead.

USDA's U.S. and world cotton supply/demand figures fell within expectations, analysts said, with projected increases in U.S. old- and new-crop carryout figures. Carryout for 2000-01 rose to 5.5 million bales from 5.0 million, with 2001-02 carryout projected to reach 6.3 million bales. The department pegged 2001-02 U.S. cotton production at 18.8 million bales.

USDA arrived at the 18.8 million bale U.S. crop estimate by starting with the March planting intentions figure, projecting a harvested area based on 1991-2000 average acreage abandonment by state and applying a 10-year average yield. A report on actual U.S. cotton plantings will not be released until June 29; therefore, the first production estimate for the year based on field inspections and surveys will be released in August.

U.S. exports next season are projected to rebound to an impressive 9.0 million bales, the largest since 1994-95, due to expanded world consumption, large exportable supplies in the United States and strong pre-season sales. One market observer mentioned that the ineffectiveness of the U.S. farm program in stimulating exports this season has raised skepticism that such a sizable surge in exports could be achieved next season, particularly in a year when foreign consumption is expected to match foreign production.

World cotton figures also matched trade ideas as USDA estimated 2001-02 world cotton production and consumption in balance at 93.0 million bales. The estimates leave the 2001-02 carryout unchanged from this season's 37.1 million bales, reflecting a fractionally lower stocks-to-use ratio for the year ahead of 39.9 percent. Meanwhile, others have projected world production will outpace consumption.

"Use of 93.0 million bales worldwide is a difficult figure to justify, especially as the U.S. market is struggling this year," one market observer said. "This demand may not be apparent in the next six months, but I suspect low prices will stimulate demand and we'll reach 93.0 million bales." Additionally, one observer felt USDA could have raised U.S. and world production more than it did with an increase in acreage around the world expected by most analysts.

"However, much of the additional cotton acreage is expected to be on marginal land and may not have the potential to really jolt yields higher," the observer added.

The supply/demand estimates overshadowed USDA's weekly U.S. export sales and shipment report. Net export sales of U.S. cotton in the week ended May 3 totaled 70,200 bales versus 105,100 bales the previous week. Export shipments rose to 152,400 running bales from 138,900 the prior week and slightly exceeded the weekly average required to reach USDA's new export estimate.

On the spot cotton scene, sales were lower this week as online trading of Texas/Oklahoma/Kansas cotton totaled only 5,203 bales for the week ended April 10, well below the previous week's sales of 10,265 bales. Average daily prices received by producers utilizing the Internet trading system also were higher as trading occurred within a range of 33.67 to 36.64 cents per pound compared to 34.14 to 36.44 cents per pound the previous week.