USDA report considered bearish for cotton


USDA’s May 10 projections for old and new crop cotton would have to be considered bearish as ending stocks are unchanged for old crop and prospects are for increased stocks for both the U.S. and the world in new crop.

Old crop production was increased slightly, but still resulted in unchanged ending stocks of 3.4 million bales.

The projected price range for 2011/12 was also unchanged at 91 cents per pound.

The stocks to use ratio is unchanged at 23 percent.

World projections for old crop ending stocks were put at 810,000 bales higher at 66.88 million bales.

Projections for new crop cotton start with the March 30 USDA planting intentions acreage of 13.16 million acres, an abandonment of 20 percent, and a yield of 777 pounds per acre. These numbers reflect the influence of the continued drought in the Texas High Plains area.

Production is projected to increase 1.43 million bales from the previous year, with total supply of 2.22 million bales higher at 20.41 million bales.

Domestic use is increased 100,000 bales and exports increased 600,000 bales from the previous year. Ending stocks increase 1.5 million bales to 4.90 million bales.

The season average price for new crop is projected to range from 65 to 85 cents per pound.

The acreage estimates will most likely be the highest for the year, as many analysts are looking for actual acreage to come in at 12.7-12.8 million acres as soybean prices have risen, while cotton prices have declined.

Demand and increased prices for the new crop year will be dependent on whether a sluggish economy in the U.S. and abroad can finally break loose from current levels.

Global cotton stocks are also slated to increase 6.87 million bales to 73.75 million bales, which would be another record.

World production is expected to decrease 6.35 million bales, but still is estimated to be 6.7 million bales above consumption.

China is expected to hold 38 percent of the world’s stock and their policies on cotton will most likely sway the market.

Keep in contact with your cotton buyer on current quotes. At this time, I am currently at 80 percent priced for 2011 production and will look to finish sales this month.

December cotton closed at 79.37 cents per pound, down the 4 cent limit. Technical analysis has a strong sell with support at 76.45 and resistance at 85.21.

Today’s selloff appears overdone and may be due to some funds’ forced liquidation.

Actual planted cotton acreage will most likely be lower than the current projection. Stronger demand will be needed to pull prices up.

Over the past 31 years the average difference between the May projection for U.S. ending stocks and the final estimate has been 1.7 million bales, with 15 years below the final estimate and 16 years above. These numbers can and will change, but do reflect the best information and estimates at the time of the report.

The next USDA Supply & Demand report will be released June 12, 2012.