The government opens and prices take a sharp dip. On the heels of the prior week’s selloff, cotton prices took a deep dive. Trade in the 63-cent level was not surprising, but I did not expect the market to fall below 63 cents. So much for my suggestion that the low was in. Now that the market has made a new low close the market remains nervous about the possibility of a trade down to 61 cents. The potential for a trade below 62 cents does exist, given the void of demand for U.S. cotton.
Prices will now battle with the 61-64 cent range. March becomes the spot month on November 21, a week from today. The March contract settled the week at 64.13 cents while December settled the week at 62.49. March will likely trade down to the expiring December contract’s price level.
The recent price lows are associated with the increase in U.S. and world cotton yields brought about by the excellent fall weather in all the world’s major cotton producing countries. USDA released its November WASDE report at week’s end and adjusted its estimates in three of the four major cotton-producing countries. Significant production increases were noted in the United States, China, and Brazil. At the same time, world consumption remains flat for the year and down year over year.
USDA increased U.S. production by 900,000 bales, up to 14.1 million. U.S. exports estimate increased by 200,000 bales, up to 12.2 million. U.S. ending stocks were increased by 700,000 bales, up to 4.3 million. It was surprising that USDA increased exports by 200,000 bales, as most felt the current export pace was not sufficient to justify the prior estimate of 12.0 million bales. It is noted that USDA “always” increases exports based on a significant increase in production. The significant increase in U.S. ending stocks is viewed as notably bearish to U.S. prices, and USDA lowered its estimate of prices received by the grower by 2 cents per pound.
Many wishful-thinking analysts have harped on the absence of China in the export market, wondering when China would buy U.S. cotton. I have commented several times that China does not need U.S. cotton. USDA increased its estimate of Chinese production by 1.0 million bales and added that increase, plus some more, to the end-of-year stock level in China, increasing Chinese ending stocks 1.2 million bales, up to 35.2 million bales, or almost equal to one full year of consumption for the country, or effectively a 100 percent stocks-to-use ratio. While China may buy U.S. cotton, it does not make monetary sense for them to buy unless they wait until June-July 2026.
USDA also increased Brazil’s production 500,000 bales up to 18.75 million bales and increased its exports 20,000 bales, up to 14.5 million bales. Brazil’s ending stocks were increased to 4.1 million bales. The net effect of all changes was a decline in world trade of 700,000 bales, a very bearish estimate. Additionally, world ending stocks increased by some 2.8 million bales, up to 76 million bales. World consumption, despite the significant increase in both production and ending stocks, was essentially unchanged, and even less than that of the marketing year 2024-25.
The market is faced with battling the 61-63 cent level for another month.
Give a Gift of Cotton Today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Source: cottongrower.com
