By Don Shurley
Everyone wants to know what has happened and why? Unfortunately, there are no easy answers.
Most analysts saw the possible range in prices for the 2014 crop to be from 70 to 85 cents--- 70 to 75 cents being the pessimistic outlook and 85 cents being the top or optimistic outlook.
The combination of factors/forces that would lead to the low end of that range in prices certainly appears to have materialized. In fact, we’ve seen prices (Dec14 futures) drop from about 85 cents in early May to 68 cents this week—closing at 68.12 today. Prices were able to hold support at around 76 cents or better for most of June but it’s been a freefall since then.
USDA released it’s much anticipated July production and supply/demand numbers today. But prices had already begun their slide 2 weeks ago so it’s hard to lay the blame completely on today’s report. Having said that, however, over the past couple of weeks, analysts had already begun to anticipate today’s numbers and factor that into prices—thus the slide had already begun. Today’s report not only confirmed those expectations, the numbers were actually more than expected—even worse for prices.
The US crop is estimated at 16.5 million bales. This is based on the June acres planted estimate, an abandonment of only 15%, and a yield of 816 lbs/acre.
The August report will be the first to contain an actual survey-based yield estimate for this year’s crop. Crop conditions have improved and the August production estimate could move even higher. As of July 6th, 55% of the US crop was rate good to excellent compared to 53% for the previous week and 44% last year.
US exports for 2014/15 are pegged at 10.2 million bales. This compares to 9.7 million in the June estimate and 10.5 million bales last year. Given the abundance of stocks in China and worldwide, exports of over 10 million bales would be better than thought possible. It could also simply be reflecting higher export supplies and lower prices.
US ending stocks are projected to be 5.2 million bales at the end of the 2014 crop marketing year—up from 2.7 million bales on-hand going in.
On the foreign and total World picture, today’s report continues to trend in the wrong direction. World stocks at the end of the 2014 crop year are now projected to be 105.7 million bales—up another 3 million bales from the June estimate. Some of this is accounted for by the US increase. The bulk of the rest of it is further increase in China.
For the 2013 crop marketing year that will conclude shortly on July 31, USDA lowered China’s cotton Use by 1 million bales.
There were no other changes, so this increase 2013/14 ending stocks (2014/15 beginning stocks) by that 1 million bales. China’s Use for the 2014 crop year was lowered . million bales from the June projection. So, in total, China’s stocks projected to be on-hand next year this time were upped 1.5 million bales from the June estimate.
It’s projected that China’s stocks will increase another 1 million bales this season (from 61.31 to 62.26 million bales). The Chinese stocks situation is not new. These stocks have been building since 2010 and the market (prices) has dealt with this for going on 4 years.
Chinese stocks have been the bomb waiting to explode. But the market could, for the most part, ignore it and there were 2 reasons given for this: (1) China wasn’t using the stocks so in the short-term the big supply didn’t matter and (2) stocks outside of China (in the rest of the world (ROW)) were “tight”.
Click here to see more...