The 2015 cotton season is beginning to wrap up with a few states having completed harvest. Through the end of November the USDA data showed 80 percent of the U.S. crop being harvested, which is eight percentage points behind the five year average pace. The most tardy states as of November 30 were South Carolina (25 percent behind), Georgia (11 percent behind), Alabama (7 percent behind), North Carolina (7 percent behind), and Texas (5 percent behind).
The remaining production uncertainties will become clearer as harvest is completed and matched up against ginnings data. This all may lead to continued minor tinkering with USDA’s production estimate during the first quarter of next year. Historically, there is an average deviation of about 5.5 percent (up or down) between the benchmark September projection and the final production estimate. The October, November, and December projections represent very small downward revisions that lie within the historical range. I do not see any likely revisions large enough to change the price outlook.
Speaking of the December WASDE, the month-over-month decrease in forecasted U.S. production resulted from an expected reduction in the Carolinas (-200,000 bales). This cut dominated some nickel and dime adjustments in a number of other states that added up to another net 50,000 bale reduction. The two largest producing states, Texas and Georgia, were unchanged. After a 200,000 cut in forecasted U.S. exports and some fudge factor tinkering, the bottom line was a 100,000 bale cut in forecasted ending stocks to 3.0 million bales.
The price implication of such an adjustment would historically be neutral, which was implied by USDA’s 56 to 62 cent projected average farm price. The prices that growers have been getting for their 2015 crop vary depending on quality. So-so color grades and high leaf cottons are resulting in discounted loan values. There is not much anybody can do about that since those qualities are more a product of the environment than the variety.
The world numbers represented the main holiday cheer for cotton prices. For the second month in a row, the December WASDE report’s most influential month-over-month adjustments were decreases in projected foreign production. This happened in Pakistan (-1,000,000 bales), China (-700,000 bales), Central Asia (-170,000 bales), Turkey (-150,000 bales), and the EU (-100,000 bales). These cuts outweighed a combined 400,000 bale month-over-month increase in Australian and West African production.
China’s projected imports were cut to only 5.5 million bales, putting them at a 31 percent year-over-year decline in imports. USDA also cut Chinese consumption again by another 500,000 bales, but this was partially absorbed by increases in Bangladesh and Vietnam. There were other small adjustments to foreign carry-in, imports, exports, consumption, and the loss (“fudge factor”) category. The bottom line of these adjustments was a 1.7 million bale month-over-month decrease in projected world ending stocks. Such a monthly adjustment would be somewhat price supporting according to economic theory and history (see Figure 1).
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