USDA began reporting harvest progress two weeks ago. The first report came in at 6% harvested, then just 8% two weeks ago and just 10% this week. The 10-year average is 15%. Frequent rains are cited for the slow pace and where rains have been really heavy, quality problems are a threat on top of the annoyance of stalling harvest. with bolls open. As for condition ratings on unharvested cotton, the portion rated good to excellent recovered the 1 pt loss of a week ago and is again back to 49% and that matches the 10-year average.The portion rated poor to very poor stands at 18%, 6 pts lower than last year.
Cotton weekly export loadings were poor, down 12% from the prior week and another marketing year low. However, weekly sales were much better, up 45% from the prior week and solidly ahead of the 4-week average. And YTD sales are at 60% of USDA’s current forecast for the season vs. a 5-year average of just 49%. That works out to a 1.1 million bale “lead” over the pace necessary to sustain USDA’s current 10 million bale export forecast, which they just lowered last month from 10.7 million bales in August. For now anyway, it appears that cut may have been premature!
Globally, ending stocks add up to just under a year’s worth of consumption when it takes under a 90-day supply just to raise the possibility of tight supplies if weather turns adverse for the new crop. That’s why we still advise catch-up sales. We still see risk of December futures slipping below 60 and we’ve seen some super-bears with forecast below 50!
We think the loan program will halt price decline to the mid-50s at worst, but that still argues for catch-up sales and gambling no more than a quarter to one-third of the crop on acreage or weather problems next spring bringing the return of anything close to bullishness in cotton..Even plummeting oil prices are weighing on the outlook by raising the likelihood of continued strong competition from synthetic fibers.
REPEATING FROM WEDNESDAY:
The biggest news this week involved cotton but had little to do with cotton market activity. The U.S. is about to settle a decade-long dispute with Brazil over U.S. cotton policy that they won in World Trade Organization litigation. The U.S. has been shelling out about $147 million per year since 2010 to fund Brazlian efforts to support their own cotton farmers. These payments came to a halt in deepening dispute after documents leaked by NSA deserter Edward Snowden confimed U.S. eavesdropping and recording of email and phone conversations by Brazilian officials.
But after lengthy negoatiations, it appears Brazil is going to drop their case in exchange for a lump sum\ payment of another $300 million by the U.S. that will be used to recover market share for Brazilian cotton producers.