U.S. cotton output may decline modestly when the U.S. Agriculture Department issues its monthly crop production data, though all eyes will be on world numbers for further clues on global supply and demand.
The USDA will release its September crop production and supply/demand reports on Friday at 8:30 a.m. EDT.
U.S. cotton production for the 2010-11 crop year is seen decreasing slightly to an average of 18.49 million 480-pound bales, from the USDA's August estimate of 18.53 million, as extreme heat in the Mississippi Delta and Southeast in August likely trimmed yields, analysts said.
Still, the USDA crop projection represents a 52% increase over last year, owing to a larger planted area and much improved weather this season.
Domestic textile mill consumption is seen holding steady from last month at 3.4 million bales, analysts surveyed said.
In August, the USDA increased U.S. exports by 700,000 bales to total 15 million, amid expectations that a recovering global economy would spur demand for textiles and the U.S. crop would help meet increased consumption in China, India and Pakistan. Analysts expect the USDA to slightly raise its export projection to 15.06 million bales in September, though some are skeptical.
"The question is, are we going to export that much cotton with the economy the way it is?" asked Sid Love, analyst with Kropf & Love Consulting in Overland Park, Kan.
How much cotton exports either reach or exceed the USDA's 15 million-bale projection depends on whether high cotton prices have rationed foreign demand and if consumers are buying but at a reduced rate, said Sharon Johnson, senior cotton analyst at First Capitol Group in Atlanta.
Johnson said she expects U.S. exports to hold up very well over the next several months, however.
The result of the aforementioned changes is a modest decline in U.S. ending stocks to an average of 3.14 million bales, from 3.2 million last month.
Traders are keenly focused on global cotton data after the USDA last month slashed world 2010-11 ending stocks by 4.3 million bales to 45.61 million. The cut took global stocks to their smallest in 14 years.
"Without a doubt, the big suspense in the...report is the USDA's evaluation of Pakistan's losses as well as crop potential in both India and China," said Mike Stevens, an independent cotton analyst and broker based in Mandeville, La.
The largest cut to world production has occurred in Pakistan, where devastating floods caused the USDA in August to lower its production estimate by 700,000 bales. Analysts expect to see an additional cut in Friday's report.
Pakistan's cotton output was revised down 17% to 8.75 million 480-pound bales as floods inundated an estimated 1.1 million acres, the USDA attache in Islamabad said recently. This suggests the USDA would have to cut its estimate by an additional 750,000 bales to reach the new lower target.
China's northern plains have seen widespread rains, causing some flooding and reducing the quality of the cotton crop, said Donald Keeney, senior agricultural meteorologist with MDA Information Systems, based in Rockville, Md.
The USDA in August increased China's cotton 2010-11 imports to 12.5 million bales, from 11.65 in July, and also raised its domestic use by 1 million to 50 million bales. Analysts said further increases could be seen to China's imports depending on the scope of the rain damage.
In India, the USDA pegs output at 26 million bales, up from 25 million in July, on greatly improved monsoon rains this year. Pakistan has sourced supplies from neighboring India to help it bridge the gap caused by the floods.
While rising cotton production in the U.S. and India will help replenish world supplies, stockpiles are expected to remain tight as consumption grows.
The ICAC estimates 2010-11 world cotton production at 115 million bales, down from the USDA's current projection of 116.85 million bales.
