Good follow through buying after a very strong close yesterday proves changes to the U.S. balance sheet were very price friendly, while changes to world balance sheet were price neutral at face value, but a bit friendly if you strip out ChinaΆs portion of ending stocks and just look at changes for the "rest of the world" (ROTW). Actual numbers from U.S. balance sheet: Prior to the report, the average trade estimate for 2013/14 U.S. production was 14.13 million bales, up slightly from USDAΆs 14.0 estimate in May. But USDA trimmed harvested acreage by 300,000 acres from May and reduced production to 13.5 million bales. But an even bigger surprise was the unexpected cut in 2012/13 ending stocks to 3.6 million bales from last monthΆs 4.0 million.
The combination of smaller starting stocks and lower production for 2013/14 took projected ending stocks to 2.6 million bales, well below the average pre-report trade estimate of 3.28 million, which would have been UP 280,000 bales from USDAΆs May ending stocks of 3.0 million. In fact, the entire range of estimates ahead of the report was from 2.75 million bales to 4.10 million, so the actual figure came in below the low end of the range and futures are sharply higher as a result.
USDA also raised the average farm price range for 2013/14 to 73-93 from last monthΆs68-88.
GLOBAL PERSPECTIVE: USDA did very little to change the global balance sheet for cotton from May. Beginning stocks were raised slightly, production and usage estimates lowered slightly for little change in projected ending stocks: 92.49 million bales vs. 92.74 million in May, a statistically insignificant reduction of 250,000 bales.
HOWEVER, USDA raised its estimate for the Chinese portion of global ending stocks by 750,000 bales, for a net decline in ending stocks for “the rest of the world” of 1 million bales, if one assumes China will continue to hold its huge reserve stocks off the world market.
Also somewhat subtle, but nonetheless price friendly, projected ending stocks among major global exporters was reduced by 520,000 bales due to a reduction in beginning stocks and production among them.
