USDA’s May WASDE report showed a modest change to the world balance sheet for old crop cotton. This is to be expected since we have entered the final quarter of the 2022/23 marketing year.
The largest month-over-month change was a half-million bale increase in Central Asian production. Together with fewer exports, this effectively raised Central Asian ending stocks 880,000 bales. U.S. ending stocks were tightened 600,000 bales month-over-month owing to several expected adjustments (discussed below). Australian ending stocks were 200,000 bales fewer owing to an increase in their exports, while Brazilian ending stocks were 250,000 greater from a decrease in their exports. Lastly, Chinese production was increased 200,000 bales, but this was offset by a 450,000-bale reduction in their imports.
In summary, we saw a lot of offsetting adjustments in a handful of countries, resulting in a modest net increase of 620,000 bales of world-ending stocks, month-over-month. I consider this adjustment price neutral.
In contrast to the foreign adjustments, the U.S. old crop cotton balance sheet was more significantly changed compared to the April estimates. On the production side, 2022 U.S. cotton harvested acres were lowered 130,000 acres, effectively raising U.S. abandonment to a record 46.9%. Average yield per acre was raised several pounds. The impact on U.S. 2022 cotton production was a 210,000-bale cut, month-over-month. This adjustment was very much expected as it represents the reconciliation of USDA’s longstanding estimate of 2022 production at 14.68 million bales with the 14.5 million bale measurement of bales classed and ginned in 2022.
On the demand side, U.S. exports were raised 400,000 bales to better match with the current level of total export commitments. This adjustment was also expected.
The bottom line of all these adjustments tightened up U.S. old crop carry-out from 4.1 to 3.5 million bales. The levels and the adjustment are historically bullish, although the market appeared to be expecting them.
Is there anything left to tinker with for the 2022/23 balance sheet? The production question should be settled. However, there remains a discrepancy between forecasted U.S. exports (12.6 million) and current total commitments (13.2 million). This discrepancy may be resolved by either raising the export forecast, or lowering total commitments (i.e., through cancellations or rollovers into the next marketing year) or both.
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