USDA’s June supply demand report sent old crop and new crop prices lower at week’s end as the marked absorbed thoughts larger crops on the horizon in importing countries as well as the Franc Zone.
World production was projected at 115 million bales compared to the May estimate of 113 million (numbers are rounded to the nearest million). World consumption was elevated to 117 million, up 750,000 bales from the prior month. Thus, world trade in raw cotton is expected to decline an estimated 800,000 bales compared to the May report. World ending stocks were increased 600,000 bales and were estimated at 88 million as of July 31, 2018. Granted these are subjective estimates, but the USDA data base is unquestionably very creditable. Thus, it is likely that the New York ICE contracts will remain under pressure until more is known about both the U.S. and other major crops. December has been well supported at 70-72 cents week after week and trading has been partial to 73 cents. The contract is showing signs of weakening, down to 68-69.50, but it is too early in the growing season to see that just yet. However, a kind Mother Nature has the potential to drive December below 65 cents.
Given the expected increase in foreign production USDA did drop its estimate of U.S. exports for the 2017-18 marketing year 500,000 bales, down to 13.5 million. Again these estimates will remain very fluid as the Northern Hemisphere production season moves forward. No other changes were made with respect to the U.S. situation: Production, 19.2 million; Consumption, 3.4 million; and Carryover, 5.5 million
Sales from the China National Reserve are on target to reach 10 million bales. Sales could be closer to 11 million. The Chinese stocks are systematically being worked lower in a very orderly manner. Equally important, China has shown no penchant to increase it stocks level and it is also noteworthy that the government has stayed true to its goal of buying only a limited quantity high quality stocks from the grower. Thus, Chinese carryover at the end of the 2017-18 marketing season will likely be down to 40 million bales, down from 2015-16 beginning stocks of 67-70 million bales. The June supply demand report is here.
The long discussed on-call dilemma of the market and textile mills is drawing to an end as July’s first notice day is now less than two weeks away. Mills have been very active with fixations and with July futures below 76 cents all the pressure is now off the mills.
U.S. crop progress has remained remarkable despite an unusual spring. In most all instances the crop is advanced compared to historical perspectives. Some dry areas do remain and nighttime temperatures have been borderline low in other areas. The use of percentages can be very misleading, but I note that the year ago level of crop rated good to excellent was 47%. It stood at 61% this week.
Across the world cotton continues to lose favor in the battle for an improved share of the fiber market. We have enjoyed the ability to recently work with others in outlining cotton’s charge to once again find some way to compete at the consumer level. However, there has been great frustration within the working group in realizing that a cheap (as compared to inexpensive) acid based petroleum fiber has all but slammed cotton to the back seat of fiber choice and even cast cotton as an environmentally damaging fiber product—when intuition clearly points in the opposite direction.
The world cotton industry has watched an ever ratcheting decline in its popularity almost without any success. The marketing arm of the world cotton industry has stood idle as never before. Hopefully some of the efforts of this international cotton group will soon begin to bear fruit. Yet, the U. S cotton grower must begin to participate in these efforts, or as one prominent U.S. marketing expert recently commented when speaking of the world fiber market, “cotton is the new wool in world fiber demand.”