The 2018/19 season will be remembered for the China/US trade disruption, the loss of confidence in consumption and for physical cotton trade as the year world trade was awash with Strict Low Middling and below color grades. This combined with overall weak demand resulted in continued aggressive merchant offers as all traders attempt to trim inventories. The weekly US export sales report illustrated the very poor level of demand and weakness of the large forward export sales in the US. Cancelations of 62,600 running bales were noted for the week and China only canceled 13,200 bales. The US has large forward export sales with almost all sales at much higher price levels and consisting of better quality grades, which normally would be abundant. This is leading to sales cancelations and the rolling forward of sales into the 2019/20 season. Net US sales for week for 2018/19 was only 47,100 running bales of upland. Two major buyers remain absent for volume, China and Turkey. China was a net buyer of 11,700 running bales and Turkey was a net buyer of 5,500 running bales. The US needs to sell an average of 157,075 480 lb. bales per week to meet the USDA export target when an allocation for carry forward sales is made. Export shipments totaled only 154,500 running bales of upland and 11,700 or Pima which is near 200,000 bales below the weekly average needed to meet targets.

Without China or Turkey the US export sales face the risk of sharply falling below the USDA’s estimates. For the USDA estimate to be reached we need to see the more than 1.1 million bales of upland which has been sold to China to be shipped and for new sales to occur in volume of a million bales or more during the next six months. The US has sold only 441,900 running bales of upland to Turkey and shipped only 167,300 running bales. Over the next six months the US will need to ship 1.7 million additional bales to Turkey which seems nearly impossible without a major trade finance package, something we have been advocating for these past several months and only silence has been noted. As these realities set in and the quality of the unpicked 2018 crop falls merchants and coops are aggressively reducing basis levels to attempt to make sales.

Adding to the pressure is the abundance of 41/42/52 color grades from the Memphis Eastern region of the US where the cotton is otherwise excellent and very long staple. Memphis Eastern 41(Strict Low Middling), 4leaf, 39 and longer staple, premium mike and a GST of 29-30 is being offered as aggressive as 875 points on March; the discount increase for a 41-5-37 as low as 625 points on March. These are the most aggressive offers we have seen with some merchants offering at much higher levels. Such selling pressure has naturally pressured the more standard Strict Low Middling 1 1/8 offers. In addition, rain at harvest has aggressive offers of Greek, Turkish and Mexican also in circulation. Aggressive Argentine new crop (planted Oct/Nov) is showing up for later shipment following a 50% increase in planted acreage. The much smaller crop in Pakistan is helping the market absorb these qualities as SLM color grade with a 1 1/8 staple length is very popular in this market and has stimulated a large volume of sales of US low grade recaps, Argentine, Greek, and Turkish. Pakistan is the second largest export market for Argentine styles in 2018.

The medium grades are under pressure as well, the standard Middling 1 1/8 E/ MOT is now offered out of some groups at 875 points on March which reflects a discount to West African (1000 points on), Greek (925 points on), near par with Central Asian (900 points on) and a slight premium to the most aggressive Brazilian M 1 1/8 offers which have fallen to 825 points on March.  The premium upland range has tight supplies and offers are much firmer. We could hardly find a US Strict Middling offer with a 2 leaf and over 37 staple, this is in direct contrast to an abundance of these grades the last two seasons. A few Greek SM 1 5/32 Fibermax offers could be found at 1200 points on. Australian Strict Middling 1 5/32 could be found at 1700 on and a few longer staple Australian 2018 styles at various levels up to 1900 points on.  Thus, a SM 1 7/32 Aussie is now at a premium of 900 points to a Memphis Strict Low Middling, 39 staple. There are no easy records to check but it appears we could be headed for a record shortage of 11/21 Good/Strict Middling 38 and longer staple lots in the US catalog, as well as, in the offering of every origin outside Australian. For the moment this coming shortage has been lost in the overall concern over demand.