By Dr. O.A. Clevleand
Professor Emeritus at Mississippi State University
Special for Bayer CropScience
March established cotton’s all time high at 227.00 cents during the delivery period while May posted its life of contract high at 219.70 cents. Thus, the contract highs for three consecutive months; March, May and July 2011, all posted highs well above the two dollar mark. Yet, this week the market took a bit of a breather. Nevertheless, I am not prepared to suggest the highs are in. However, my sense is that the bull has finally suffered a slight chink in its armor. This is not to suggest that the resurgence of the bear is on the horizon. It is not. Dollar cotton will continue through 2011 and 2012.
USDA’s March supply and demand report contained few changes from its February estimates. (Recall, the February estimates were also very similar to the January estimates.) The primary change over the past three months has been the reduction in world carryover, down now to just 42 million bales; and reflecting a stocks to use ratio of just 36 percent compared to a massive 55 percent just eighteen months ago. In its March report, USDA reduced world production 300,000 bales, down to 114.9 million. World consumption was increased to 116.6 million bales and carryover stocks were dropped 480,000 bales. In making those calculations USDA lowered Chinese production (500,000 bales) and Indian production (1.0 million bales). The Southern Hemisphere crop was raised in Brazil (600,000 bales) and Australia (500,000 bales). Brazilian production was estimated at 8.8 million bales while Australian production was estimated at 4.5 million bales. USDA did not change any of its estimates for the U.S. I remain of the opinion that Chinese consumption, estimated at 47 million bales, is two to four million bales too low.
Perhaps one should also take note of USDA’s changes in the oilseed and grain ending stocks. Those stocks are now estimated higher and should be expected to hold those markets in check. It cannot be over emphasized that cotton has gained equal footing in its battle for planted acreage with other field crops. While the pending concerns of increasing world hunger and the food crisis in numerous countries, a decline in grain and oilseed prices will also lead to a decline in cotton prices. Yet, a significant increase in grain and vegetable oil stocks cannot likely be accomplished until at least 2013. Thus, not only will cotton acreage increase in 2011, but 2012 will see another acreage increase.
Textile mills were very active in the futures market this week as many took advantage of the lower prices and made price fixations on the July contract. This will be reflected in next week’s On Call Sales report released by the CFTC. Too, it was the first signal (chink in the armor) that both May and July futures prices might not climb as high as did March futures.
Weekly U.S. export sales continue at record levels. U.S. net Upland sales for the week ending 3-3-2011 totaled 476,900 RB for both crop years. The prior week’s sales had been 403,300 RB. China has remained the largest customer, continuing to offer evidence that Chinese consumption is stronger than the official estimates.
Weather continues to dog the prospects for 2011 production. Nevertheless, growers are encouraged to forward price one third to one half of their crop at 125.00 to 130.00 cents.
