USDA began reporting harvest progress last week. The first report came in at 6% harvested. And this week, it had advanced only 2 pts, to 8% harvested. Persistent rains in the southern and central Plains states are the culprit. Quality problems are feared as well, with soaking rains at the worst possible time for a lot of cotton.
As for condition ratings on cotton still in the field, the portion rated good to excellent declined a point, to 48%. ThatΆs still better than last yearΆs 44%, but now a point below the 10-year average. About 18% of the crop is rated poor to very poor vs. 23% a year ago.
Indian officials pegged their crop 1.5 million bales higher than USDAΆs latest forecast for that country. More bearish news this week came out of China in two installments. First they confirmed a plan to support producers with deficiency payments from a target price well above global price levels. But that was old news. The really bearish news was announcement by Beijing that they would sharply curtail import licenses for domestic mills, forcing those mills to start using up more of ChinaΆs enormous reserve stocks of more than 170% of annual usage, poor quality of those stocks notwithstanding.
However, just overnight officials also said they were going to put sales of reserve stocks on hold for several months and focus on purchase from farmers and sale of the new crop to domestic mills before putting older reserve cotton on the market.
Globally, ending stocks add up to just under a yearΆs worth of consumption when it takes under a 90-day supply just to hit the threshold of what traders consider “snug” as a buffer against problems with production the following crop year. With futures sagging to the lowest levels in 5 seasons this week, weΆre back to suspecting December will dip below 60 cents before bottoming out. Further, any seasonal rebound this year will be tepid at best. The only hope for a serious price recovery would be an unexpected drop in global acreage and/or crop problems with the 2015 crop.
Prices are back to 5-year lows and the news from China and India tells us futures may indeed dip under the 60 mark before registering harvest lows.
