News from China that their 2014 acreage was actually down nearly 16% instead of the 7% decline analysts have been using all season was a definite plus to today’s market. That will surely be reflected in USDA’s December WASDE and should lead to a reduced estimate of global production and ending stocks. They’ll remain huge, of course, but just turning the ending stocks lower after endless monthly increases will be an important psychological boost to the market if nothing else.
Harvest is now 69% complete, 3 points ahead of last year but four points behind the 10-year average. Among the 15 states accounting for 98% of last year’s crop, AR, LA, MS and CA are near complete with less than 5% still in the field. Furthest behind their five-year average were TX, OK and KS, all three with over half the crop yet to harvest.
Export sales continue to run well ahead of the pace needed to warrant USDA’s current export forecast of 10 million bales. We think it will eventually be raised by 250,000 bales and ending stocks lowered accordingly.
Fears of slowing global demand, particularly in China, plus ongoing concern about fierce competition from synthetic fibers with the break in oil price have teamed up to reinforce longstanding negative fundamentals, globally.
Continued erosion in prices seems inevitable in order to spur consumption and discourage acreage planted for 2015. Our own U.S. acreage forecast has dropped to 9.6 million from this year’s 11.0 million. How low will cotton have to drop to “find a bottom”? Possibly all the way down to government loan rates in the low 50s.
We know we sound like a broken record, but global cotton producers have to come to grips with the fact that even if you exclude China’s stocks and usage due to their reserve policy, global stocks-less-China would still represent over a 7-month supply at current rates of global usage-less-China. And with said stocks not considered to be “getting tight” unless they fall below a 90-day supply, the U.S. and global cotton fundamentals can only be seen as bearish unless there is a substantial reduction in global acreage and stocks in store for 2015-16.
We think there will be such a reduction, but only if we first suffer enough additional price decline to spur demand AND discourage production. That’s why we remain pretty aggressively sold on old crop but reluctant to price new crop.