Markets are closed on Monday for the Martin Luther King holiday. The next report update will be on Tuesday. But if we see important market moving news on Monday, we will plan to tweet the updates at the DoaneAg twitter account.
The juggernaut higher for old crop continues, still propelled by rising optimism about U.S. exports. That notion got fed further today with wire service reports that some large scale cotton textile mills in China are pulling out of the country and moving operations to neighboring countries (particularly Vietnam) where labor is cheaper and they donΆt have to deal with import restrictions or sky-high domestic prices for often inferior-grade domestic cotton metered out of government reserves.
Further support came from closer scrutiny of yesterdayΆs weekly export sales report that showed new crop sales even more robust than old crop sales, despite the announcement from Beijing that they would end domestic price supports for 2014 and go to a U.S.-style system of target prices and deficiency payments for their producers.
And then there is recent awareness that U.S. export sales might be significantly higher than where USDA has them because some major players in exports havenΆt been reporting large sales as required and were recently fined half a million dollars by the CFTC.
Ideas that export sales reported by USDA YTD are “understated” due to some failure to report big sales to China are behind it. HereΆs the weekin review, repeating from last nightΆs comments for those who missed them:
Weekly export sales were up abruptly from last week and 46% higher than the 4-week average. China was again among the big buyers, mitigating worries that plans to start tapping their mountain of reserve cotton (and curtailing imports) for the 2014/15 marketing year isnΆt much affecting old crop import plans.
YTD cotton export sales continue to lag where they “ought” to be, based on 5-year history, compared to USDAΆs latest export forecast of 10.5 million bales, which was 100,000 higher than in December. But we learned this week that some major players for exports to China have been fined $500,000 by the CFTC for failure to meet export sales reporting requirements. That mitigates the bearishness of the lag in “reported” sales YTD.
Prior to USDAΆs Jan. 10th supply/demand updates, trade estimates for the cotton crop averaged 13 million bales, down 100,000 from December. But USDA came in at 13.19, up about 120,000 bales instead. Trade estimates for ending stocks averaged 3.2 million bales, 200,000 bales higher than in December. But USDA also hiked estimated exports by 100,000 bales and tweaked its “unaccounted” use up by 20,000 bales for no net change in ending stocks.
As for the global balance sheet in cotton, USDA raised global beginning stocks and production both slightly, and cut estimated global use slightly, resulting in yet another net hike in estimated global ending stocks for cotton to 97.61 million bales from 96.41 in December. However, over 1 million of that 1.2 million bale hike was registered in China, where the bulk is in government reserve and unavailable to the market. So traders took the hike in stride at the global level with little impact on futures trade either direction.
What I find still ominous in all this sudden bullish euphoria, however, is that among die-hard fundamentalists like myself, who think it unwise to simply “not count” ChinaΆs 60% share of projected world stocks, the upside potential for new crop cotton from here is probably 2-3 cents while the downside risk, if U.S. acreage rises as forecast this spring, while China bows out of the import market to use up excess stocks, is 15-20 cents lower!
