January 11, 2008

USDA’s January supply/demand report was deemed neutral to positive by cotton market observers despite an increase in crop production estimates and a reduction in U.S. cotton exports.

USDA raised its estimate for U.S. 2007-08 cotton production to 19.03 million bales from 18.99 million estimated in December and lowered U.S. exports to 16.0 million bales from 16.20 million in the previous report. Therefore, ending stocks were bumped up from 7.7 million to 7.9 million bales.

“The U.S. numbers were largely unchanged and stayed close to analysts’ projections,” a market watcher explained. “There were no big surprises where U.S. numbers were concerned, but world numbers held a few interesting figures.”

USDA’s world cotton forecast included lower beginning stocks, production, consumption, trade, and ending stocks when compared to the previous month’s report. Global cotton consumption was projected at 128.02 million bales, down slightly from 128.07 million, and world cotton production was lowered to 118.25 million bales from 118.76 million one month ago. As a result, world ending stocks were lowered approximately 500,000 bales.

While analysts expected lower production from China and Pakistan, the fact that the department raised India’s production figure caught many in the market off guard. Production in India, the world’s second largest cotton producing country, increased by one million bales to 25 million in USDA’s latest report. Additionally, the country’s exports were pushed up to 5.8 million bales from 5.3 million.

“We knew India was exporting more cotton so to raise exports makes sense, but most of us weren’t expecting them to raise production as much as they did,” one analyst said.

USDA shaved one million bales off the production forecast for China, the world’s top cotton producer. The department pegged China’s cotton production at 34.50 million bales and lowered the country’s imports to 14 million bales from 14.5 million the month before. Therefore, China’s ending stocks estimate was pushed down to 15.64 million bales from 17.14 million.

Meanwhile, USDA reported net export sales of 60,700 bales in the week ended Jan. 3, a four percent increase from sales the week before, but 64 percent less than the four-week average. Primary buyers were China, Hong Kong, Turkey, and Taiwan.

Export shipments of 162,700 bales were up 32 percent from the previous week but down 10 percent from the four-week average. Major destinations included Turkey, Indonesia, Thailand, and Mexico.

On the spot cotton scene, online trading by producers in Texas, Oklahoma, and Kansas totaled 55,496 bales in the holiday-shortened week ended Jan. 3 compared to 66,452 bales the previous week. Average prices received by producers ranged from 57.48 to 62.05 cents per pound versus 58.02 to 61.79 cents per pound one week earlier.