by Andy Ryan

The first part of the daily title was pulled directly from media headlines on both sides of the Pacific.  The second part, regarding cotton, was pulled right out of my head.  However, knowing what we thing we know about US cotton and Chinese S/D, we don’t thing our assumptions are irrational.  Chinese officials did much to reassure the world that President Trump’s rosy spin on the dinner in Argentina was, in fact, correct.  Liquid natural gas (LNG) and soybeans were mentioned specifically.  So, why not assume that a country that has a USDA-predicted shortfall of 15 million bales this year is gonna need some cotton from the worlds largest exporter (US).

So, how do we come to such an assumption if the same USDA says China had 38.02 mb to begin the marketing year?  For a couple years now, since the Reserve has been auctioned off, its widely know that a significant percentage of the existing reserves is extremely undesirable cotton.  It was procured expensively, sloppily and corruptly by the government.  Although some of it is usable, much of it does not meet the spinning needs of the modern Chinese mill.  They will auction Reserve stocks to support domestic production of 27.5 mb, but not likely more than 4-5 mb (1 m tonnes).  We shouldn’t forget what happened the last time the Chinese let their Reserves dwindle close to negligible.

The current USDA figure for Chinese imports is 7.0 mb.  It shouldn’t be enough is consumption is anywhere near the current number of 42.5 mb.  Yes, there is a small glut of yarn within China, but they will not shut down the mills given the fragile state of the general economy.  China is going to need more imports, and they will need it in chunks of 5k to 10k tons.  That means US cotton.

by Andy Ryan

andy.ryan@bnacommodities.com