U.S. WASDE updates neutral to price friendly; global numbers bearish, but only if you count China stocks as part of world ending stocks.
As for the old crop (2012/13) balance sheet, USDAΆs WASDE revisions were neutral, with USDA raising exports a bit more than expected (by 250,000 bales), which neutralized an unexpected hike in estimated 2012 production, to 17.29 million bales from last monthΆs 17.01 million. But it netted a 200,000 bale drop in ending stocks and put USDAΆs average farm price forecast at 72.0, right in the middle of last monthΆs range from 70.5 to 73.5.
As for USDAΆs first official balance sheet for the 2013/14 marketing year, the numbers were price friendly. Production was pegged at 14 million bales, compared to pre-report trade estimates averaging 15.5 million and ranging from 14 million to 17.6 million.
USDAΆs first projected ending stocks for cotton were also price friendly, coming in at 3 million bales compared to avg. pre-report estimates at 4 million. USDAΆs first farm price forecast range for the new season is 68-88.
Global numbers, however, were price negative in futures market reaction because USDA raised both beginning stocks and production for 2012 enough to bump ending stocks up more than 3 million bales from last month, to 84.78 million. However, nearly the entire increase in global stocks was for China and China is not only holding its stocks in reserve, but continuing to IMPORT cotton. So if you exclude ChinaΆs stocks, global stocks actually decline in 2012/13, to 36.52 million bales from 39.68 million in 2011/12 (not counting ChinaΆs portion.)
ItΆs a similar story for USDAΆs first global balance sheet for 2013/14. At face value, the numbers are clearly price bearish, with projected global ending stocks rising to 92.74 million bales from 84.78 million now projected for this seasonΆs ending stocks. But if you subtract ChinaΆs share of global stocks, at nearly 63% of the world total, net global ending stocks actually DECLINE in 2013/14, to 34.56 million.
It makes a huge difference to the global price outlook if you discount Chinese cotton stocks as “unavailable” to the global market. Counting those stocks, projected stocks equate to more than a 10-month supply in a market where a 3-month supply is considered an “adequate” buffer stock.
But if you DONΆT count the Chinese share of global stocks, then net stocks equal 4 months of usage; still more than “adequate” but not burdensome by any means and suggesting cotton prices could be surprisingly sensitive to weather problems for cotton production outside of China.
Catch-up sales are advised if not at recommended levels below; but no more than that for now.
