PCG EMAIL SERVICES: DELTA FARM PRESS: Demand for high quality propping up cotton prices
PCG Email Services
pcg_email_service at plainscotton.org
Thu Sep 18 17:24:33 CDT 2014
DELTA FARM PRESS: Demand for high quality propping up cotton prices
Wed, 2014-09-17 16:38
A key factor propping up cotton prices despite large global supplies is the short supply of high quality cotton to be had, says O.A. Cleveland, Extension professor emeritus, Mississippi State University, speaking at the Ag Market Network's Sept. 12 conference call.
"Cotton is not a homogeneous product, as we think of grains and oilseeds. Previously we might have had viewed cotton that way, but I think the times are changing," Cleveland said.
Cleveland said there is exceptionally strong demand "for machine harvested, low contamination quality cotton typically grown in the United States, Brazil and Australia. There's just not much of it in the world. That's where I think the bullishness comes from."
While USDA recently raised its estimate of world ending stocks by 1 million bales, to 106 million bales, ending stocks of cotton from the three countries that produce high quality cotton are estimated at 13.1 million bales, down 450,000 bales from the last estimate.
"This is the cotton that the Chinese mills need," Cleveland said. "In their reserve, they have just run-of-the-mill cotton stocks. They do not have the high quality cotton to mix with their current inventory to get the yarn counts they need to sell to the market."
USDA lowered its estimate of the U.S. cotton crop by 1 million bales in its Sept. 11 Crop Production report, reducing production from 17.5 million bales last month to 16.5 million bales this month.
U.S. carryover declined from 5.6 million bales in August to 5.2 million bales this month.
Export sales are already 40 percent ahead of last year's pace, Cleveland says. "So we have had strong sales on the books to date."
The combined cotton crops of Brazil, Australia, and the United States are down 1.1 million bales from last month. "This is your machine-harvested, low-contamination cotton. The cotton that is highly desirable in the marketplace."
Chinese imports, based on USDA data, were raised 520,000 bales. "We've been saying all year long that USDA was too low there," Cleveland said. "I think they're still too low, but they have come up from last month."
U.S. exports dropped from 10.7 million bales to 10 million bales, a reduction of 700,000 bales. I thought that USDA would increase U.S. export sales, yet they were down," Cleveland said.
The most recent report on U.S weekly export sales was negative, due to cancellations.
USDA increased world new crop production to 118 million bales. "It's not that much of a change, but the world carryover is a bit bearish," Cleveland said. "USDA increased world carryover 1.2 million bales, from 105.1 million bales 106.3 million bales."
India's cotton crop was increased to 30 million bales, despite a heavy monsoon. China's crop was pegged at 29.5 million bales, but Cleveland says it could be as high as 31 million to 32 million bales.
Other factors that could affect the cotton market are not yet known, Cleveland noted.
While USDA dropped the size of the Texas crop from the previous month by 500,000 bales, it could drop much further in the absence of favorable weather to mature out the crop, or climb if better weather prevails. The Southeast crop was down 460,000 bales, and the Mid-South crop, down 65,000 bales from the previous month.
USDA arrived at the previous figures by reducing estimated U.S. plantings by around 300,000 acres, with Texas taking the big hit, at 250,000 acres. USDA also reduced estimated cotton yields from 817 pounds to 803 pounds.
Chinese cotton policy is another big unknown, according to Cleveland. "The Chinese have played their cards extremely close to the vest. However, while the existing import quotas in China will expire in December, part of the forthcoming policy will be a healthy import quota."
Cleveland believes the cotton market has found equilibrium, "which is about where we are now, around 65 cents. Prices will be slow to move higher, but we will gradually move higher."
According to Jarral Neeper, president of Calcot, Ltd., demand for high quality is strengthening. "The biggest demand for cotton seems to be 31-3-36, 21-2-37. A lot of users were waiting for much lower prices before they put their orders in, and now it's gotten to the point where it doesn't matter what the price is, they need cotton."
More information about the PCG_Email_Service