As we draw this week, this month, and this year to a close, the longterm chart in cotton has fared pretty well. The long-term uptrend line held in the mid-to-upper 70s. It has stalled in the low 80s, but if there are bullish surprises in acreage or crop weather next year, thereΆs a long-term potential for reaching the low 90s, strictly technically speaking.
Fundamental, that long-term potential seems an extreme long-SHOT, however, because global ending stocks are record high relative to global use, if you count the 60% held in reserves in China. Even if you donΆt count those, global stocks are far from “tight.” And if China makes a policy change that would suddenly put their reserves on the market at globally-competitive prices, the long-term uptrend shown below is history and weΆd be lucky if 2012 lows in the mid- to upper-60s held!
The weekly export sales report was mixed. Sales were up 36% from last weekΆs dismal total, but still down 5% from the 4-week average. Year to date sales are running about 312,000 bu. shy of where they need to be to warrant USDAΆs current export forecast of 10.4 million bales for 2013/14.
On top of that, a widely-followed private firm issued a forecast for cotton acreage to rise about 500,000 acres this week. We think it will decline some instead. A big part of our reasoning is tied to cottonΆs current ranking in returns over costs, compared to other crops. Look at this issueΆs FOCUS report. YouΆll see that based on current futures prices and national average costs of production, returns over variable costs for cotton at current futures for 2013-crop rank 6th out of eight major crops, beating out oats and barley but well under five other crops.
ItΆs even worse when you look at projected returns for 2014-crop cotton using current new crop futures and USDA estimated total production costs (both variable and fixed). Cotton comes in dead last among 8 major crops for 2014, projected to lose $212 per acre at current futures prices and USDAΆs just-updated estimates of costs of production among major crops. (WeΆll be conducting our own planting intentions survey in late February, just ahead of USDA releasing its annual March Planting Intentions report.)
