More clarity On US Cotton Crop, An Early Market Outlook For Next Year

Nov 25, 2016

By Don Shurley

The 2016 U.S. cotton crop may still be somewhat of a question mark but USDA’s November numbers provided clarity on a few things: the cotton crop got smaller in some areas as expected, and the crop still got bigger overall.

The North Carolina and South Carolina crops were reduced by a total of 95,000 bales. The Georgia crop is now closer to being correct after being reduced 150,000 bales and the crop could get a bit smaller in all 3 instances. But these reductions totaling almost ¼ million bales were more than offset by increases in Mississippi, Tennessee, and Texas.

US exports are projected at 12 million bales—unchanged from the October estimate. This is a good level of exports considering that China is expected to limit imports for the second consecutive year. As of Nov 10, export sales this marketing year total approximately 7.0 million 480-lb equivalent bales—58 percent of the USDA estimate. This compares to 47 percent at this time last year. Shipments total 2.55 million or 21 percent of the estimate. To date, the pace of shipments projects to only 9.2 million bales for the marketing year—but shipments were 17 percent at this time last year.

China is expected to import (from all sources) 4.5 million bales this crop year compared to 4.41 million last year. As of 11/10, US export shipments to China totaled approximately 264,400 bales. Sales totaled approximately 910,000 bales or 20 percent of China’s expected total imports.

This month’s USDA numbers lowered World cotton Use, or demand, just slightly to 111.99 million bales. In the big picture, this number itself is insignificant. But psychologically, this nervous market will pay close attention to this number. This is only .65 percent above last year and less than 2 percent growth since 2013.

One issue is the “price problem” or loss of market share to man-made fibers due to substitution at the mill. Other issues are “structural” and reflect change in consumer preference and buying patterns. Also, part of the decline may be due to cotton production viewed by some as not environmentally friendly and sustainable. Research, education, and promotion are on-going to improve cotton’s image and develop new fabrics that appeal to the consumer. These are longer-term solutions, however.

In the near term, if prices are to sustain themselves at the current level or improve, demand must show stability and growth. Otherwise, price direction will be largely dictated by the supply side—production and production shocks.

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