While wire services are citing the sudden rebound in the dollar and sharp break in crude as reasons behind cotton’s downturn, we totally concur with another cotton specialist we like that it’s more likely the rebounding dollar and implicit threat to exports than the break in crude.
The latter seems somewhat of a stretch in that weak crude oil gets expanded into cheaper prices for petroleum based synthetic fibers which then cut into demand for cotton. That theory gives folks like us something to write about when news is scarce, but it totally ignores the fact that consumer tastes in fabrics have far more to do with what they buy than what’s cheapest. All you have to do is walk through any urban ghetto and eye the designer jeans and Nike shoes on folks who otherwise subsist on social services for basic necessities of life to get my point.
But for that matter, it’s even somewhat of a stretch to blame the rebound in the dollar since cotton sales have been absolutely sizzling right through this whole bull move in the dollar. I still think it has far more to do with uncertainty over the future of export sales to China than anything else.
We’re likely to see solid acreage declines for 2015, which will help. But if China follows through on threats to sharply limit import quotas for cotton and attempt to “force” domestic mills to use up their mountainous stockpiles of low quality domestic cotton, it might take a couple years of declining acreage to generate a significant bull market in cotton.
After all, we have to remember China has an 18-month supply in reserve and globally, ending stocks add up to a 7- to11-month supply, depending on whether you want to even count China’s share of global ending stocks. That’s pretty darn bearish when you have to work ending stocks forecasts below a 90-day supply before the supply outlook even STARTS looking tight!