The global cotton crop is forecast at 116 million bales, 800K less than the USDA and 200K below my December projection. Using either my figure or the official, world production is falling to a 4-year low and is at least 6 million below 2012, if not 7 million. China accounts for all of the difference with WashingtonΆs official versus mine, with the US drop offset by a higher Pakistan figure.
I am also easing my “Others” category down to the USDA of 28.4 million and may go down another 100-300K, depending on weather the next few months and insect issues in the southern hemisphere. A drop in area, 33.03 versus 34.33 million ha, and yield, 764 kgs/ha versus 781 kgs/ha, from 2012 accounts for the decline in production year over year.
2014/15 World Cotton Production - I will discuss in larger detail the potential for the upcoming crop year in my Cotton Outlook presentation at the AFB annual meeting next Monday, January 13, in San Antonio. I briefly mentioned the potential for a larger US cotton crop in my last report, depending on spring/summer weather in the SW region.
There is a uniform opinion ChinaΆs crop will be smaller, as outlined by the ICAC in its Janurary 2 release. Cotlook confirmed as much in todayΆs Beijing report. Producers in the eastern provinces have expressed a preference for corn and wheat versus cotton. Per Cotlook, Chinese cotton area could be down 9% based on a survey of their sister organization to 63.1 million mu or 4.21 million hectares versus 4.631 million ha this year.
Note: Washington is using a cotton area of 5.05 million ha for 2013/14. Higher labor costs in the Yellow River Basin and ΅dry weather in recent yearsΆ in the Yangtze River basin is also contributing to producersΆ dissatisfaction with cotton. The 4 provinces mentioned with the sizable drops are Shandong and Hebei in the north, the second and third largest producing provinces and Hubei and Anhui in the south, the routh and sixth largest producing provinces.
The smaller area is forecast to put output down by 7-11% from this year with a possible crop of 6.0-6.3 million tons (27.5-28.9 million statistical bales) assuming average yields. The ICAC 2014/15 world cotton crop is projected at 114 million bales, 2 million less than my figure for this year with China accounting for much of the drop in world area and production.
POTENTIAL PRICE IMPACT/POSSIBLE CONCLUSIONS
US cotton futures may have found a short-term low at 82.66 given its rejection and better close in MonΆs session. The nearby contract closed a few ticks above its 10-day moving average but failed to close above its 200-day MA. Over the next day or two, news from the ongoing NCC Beltwide may influence prices.
My technician had the following comment for Tuesday: “March cotton closed higher as expected and gives mixed impressions for Tuesday.” The increase in spec longs per the CFTC COT reports as of December 31 may temper any enthusiasm in light of MonΆs rally. But since specs in all likelihood reduced longs in the past week, the next COT report could show a decline offsetting some/all of the recent weekly increase. ThursdayΆs action should be sedate in anticipation of FridayΆs USDA reports.
As with the acceptance of tight US ending stocks, traders are a bit more upbeat about global cotton consumption. If USDA accepts internal opinions of ChinaΆs smaller production leading to a reduced world crop, world stocks will benefit. The current increase in carryout of 7 million per USDA numbers will only shrink slightly, closer to 6 million, but some of the decease will be in China, always good news.
Sharon C Johnson, @Copyright 2014
