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May 10, 2012
The cotton market sprang into action Thursday in response to the release of USDA’s weekly export report and the May U.S. and world supply and demand data. Upon the release of the supply/demand report, cotton futures prices on the Intercontinental Exchange (ICE) dropped to triple digit losses only to bounce in a series of rebounds with progressively lower highs.
USDA’s U.S. cotton projections for 2012-13 included higher supply, demand, and ending stocks compared with 2011-12. Projected production was raised nine percent based on prospective plantings and average yields. Above-average abandonment was projected at 20 percent due to the continued drought on the Texas High Plains.
Domestic mill use was projected at 3.5 million bales, 100,000 bales above 2011-12. Exports were projected at 12.0 million bales, five percent higher than last season in response to a larger amount of available supplies. Ending stocks were raised to 4.9 million bales. The projected stocks-to-use ratio of 32 percent was well above the last three seasons but only slightly above the 10-year average of 30 percent.
The acreage estimates most likely will be the highest for the year as many analysts are looking for actual acreage to come in at 12.7 to 12.8 million acres as soybean prices have risen while cotton prices have declined. Demand and increased prices for the new crop year will be dependent on whether a sluggish economy in the United States and abroad can finally break loose from current levels.
The department’s initial 2012-13 world cotton projections show record world ending stocks for the second consecutive season resulting from an expected 6.7 million bale surplus of production over consumption. World production was projected five percent lower than last season at 116.7 million bales with reductions predicted for nearly all major cotton-producing countries except the United States.
World consumption was expected to rise 3.3 percent due to modest growth in both world GDP and cotton’s share of world fiber demand as lower cotton prices relative to polyester improve cotton’s competitive position. World trade was expected to fall 10 percent as sharply lower imports by China were partially offset by increases for other countries where cotton demand is projected to rise.
China’s national reserve stocks currently are estimated at nearly 20 million bales. The government of China has announced a 2012-13 support price above both the 2011-12 support price and the anticipated world price; therefore, the reserve is likely to acquire a significant proportion of the 2012 crop.
China’s government has not yet indicated how it will manage the expected deficit in production relative to consumption. The China 2012-13 import projection of 14.0 million bales was based on USDA’s assumption that China will limit the growth of national reserve stocks by releasing a portion of the reserve. China’s total ending stocks are expected to grow 14 percent to 28 million bales, representing 38 percent of total world stocks.
Meanwhile, USDA’s export sales report was viewed as supportive with net export sales of 99,400 bales of upland cotton plus 94,200 bales for the next marketing year. Shipments were strong as well, totaling 322,700 bales. China was the primary buyer of both old and new crop cotton as well as the major export destination for the week.
Sales on the spot cotton market were almost unchanged from the previous week. Texas, Oklahoma, Kansas, and New Mexico producers sold 666 bales online in the week ended May 10 compared to 645 bales the previous week. Average prices received ranged from 74 to 80 cents per pound compared to the previous week’s 75 to 79 cents per pound.