By Dr. O.A. Cleveland
Special for Bayer CropScience
As if the cotton market had not suffered enough damage this past month, FridayΆs USDA December world supply and demand report caused the cotton engine to sling a rod; and one that cannot be fixed in the near term. Yet, there is some hope for the intermediate term and even promise for the long term. Even at that, all is far from lost, not by a long shot. The cotton futures market, basis the New York ICE March contract remains above 90 cents and continues to attempt to hold above its 91-92 cent support level. Too, the competition for acreage among grains, oilseeds and cotton should help the new crop December 2012 contract keep trading in the very high 80Άs and eventually lead to a likely unsuccessful challenge of the dollar mark. The real dichotomy in the market is that retail sales are demonstrating positive growth, but sales of raw cotton are at best dismal. All countries except China have cut cotton imports and consumption. However, the Chinese continue, from time to time, to buy massive quantities of cotton. The current round of quota sales to China will end in a couple of weeks and then it will be February before the next quota is opened and more new sales can be made. In addition to the quota cotton Chinese mills are purchasing, the government will continue to purchase U.S. cotton for its national strategic reserve. This is positive for the market in that cotton is shipped to a deficit production country from a production excess country, thus tending to balance stocks where they will be needed.
However, most of the Chinese purchases for both quota cotton and certainly all of the cotton sold for the strategic reserve program is going into warehouses in China rather than to mill opening rooms. Thus, while U.S. stocks are moving lower, Chinese stocks are increasing and according to the USDA, world carryover stocks are also increasing. Any increase in world stocks above the current level will most assuredly will be reflected in lower cotton prices.
In its report, USDA lowered its estimate of the 2010 U.S. crop 473,000 bales, down to 15.83 million bales. However, domestic consumption was lowered 200,000 bales, down to 3.6 million, but exports were unchanged, remaining at 11.3 million. The result was to lower U.S. ending stocks to 3.5 million bales, down 300,000 from the prior month.
The big surprise was that world consumption was reduced by 2.7 million bales in deference to the very weak world demand. USDA reduced demand for China, India, and Turkey, the principal cotton consuming countries in the world. World ending stocks were increased to 57.7 million bales, up from the November estimate of 54.9 million bales. Carryover stocks at this level will be a burden on the market.
