By Dr. O.A. Cleveland
Professor Emeritus, Mississippi State University
Special for Bayer CropScience
USDAΆs release early in the week of its April supply demand report sent the market lower in as the Department made major historical revisions in its data base for India. In total, USDA “found” some 3.5 million bales of Indian cotton it had previously not included. The revisions were from 2009 forward. The result was a near four million bale increase in world ending stocks, up to 66.1 million bales for the 2011-12 marketing year. This represents nearly sixty percent of consumption need in 2012-13. An attempt to move higher and regain losses was met with profit taking and December moved about 250 points lower on the week, basis the Thursday to Thursday closes. While fundamentals appear to be very bearish, both the technical picture and psychological factors favor the market holding its 85 cent support level. Too, one fundamental remains strongly in the long term bull camp; the cotton/oilseed and cotton/corn price ratios remain very favorably in the bull camp. Yet, this is a long term fundamental.
Chinese acreage is projected fifteen percent lower in 2012 than last year. This projection (actually sixteen percent) was floated six weeks ago, but found little traction in the market. Reports are now circulating that interior Chinese estimates have their 2012 production at a maximum of 29 million bales. Compare that to 34 million bales last year and 37 million in both 2007 and 2008. While Indian acreage will remain nearly firm, compared ten to fifteen percent acreage cuts in other major producing countries, their plantings will be off as much as five percent. As noted last week, U.S. planting have ΅shrunkΆ virtually every week since growersΆ intentions of 13.2 million acres as of March 1. This week only served to solidify the decision of other Midsouth and Eastern growers to switch from cotton. Again, look for U.S 2012 plantings to fall to 12.8 million acres, 400,000 below the March Intentions Report.
While the record world carryover will continue plague the cotton market, the “plague” will surface in the 80 to 85 cent range as opposed to the 45 to 60 cent range in recent years when the market faced record levels of carryover stocks. Cotton is far too cheap to maintain any production infrastructure below 80 cents, possibly 85 cents.
Too, in the absence of moisture in West Texas (this weekΆs was very spotty and generally very light); the 80 cent floor becomes an 85 cent floor. The region is on pace to remain just as droughty as last year. Long range weather forecasters (and letΆs hope they are incorrect) are suggesting, NOT PREDICTING, that West Texas may be in the beginning stages of five year or longer drought cycle.
As previously noted the oilseed and corn complex will continue to support cotton prices because all the crops compete for the same acreage. Obviously, the world demand for food grains, feed grains and vegetable oil is taxing traditional agricultureΆs ability to meet demand. Technology in the form of higher yielding genetics will continue to be the life support system to feed a very hungry world. Price ratios favor field crops other than cotton at present. Yet, this only sets the table for higher cotton prices during the late stages of the 2012-13 marketing season. For now, the 2012 crop year, cotton growers must be content for New York ICE cotton futures to trade the 85 to 95 cent range.
