In a bit of surprise, the January 2014 World Supply and Demand Report found more cotton in the world and continued its monthly trend of increasing world carryover. It is now a psychologically-challenging 98 million bales – almost an unheard of one year supply.
The Chinese carryover is 58 million bales, or roughly 60 percent of the world total.
The market demonstrated little response to the report, appearing to be more involved with the idea that the export barrier becomes too high at 85 cents, and the market must fall back to the 81-82 cent level in an attempt to uncover demand.
Thus, the broken record continues. The 78-85 cent trading range remains in place.
Nevertheless, my end of the year contention that China will remain a major market participant during 2014 remains solid. While some suggest Chinese buying will or might slow, such a forecast is months away, if it even comes to fruition at all.
All at the recent 2014 Beltwide Cotton Conferences agreed that U.S. cotton acreage would increase this planting season. The average estimate was about 10.8 million acres of Upland and Pima.
My estimate was and remains 11.1 million planted acres for 2014 – 10.9 million of Upland and 200,000 acres of Pima. The increase will come about via some 800,000 acres in Texas and about 100,000 acres in the Mid-South and Southeast, respectfully.
And, as long as I have the saw in my hand, look for the 2015 plantings tree limb to be very similar.
Whether China slows its raw cotton imports or not, it will surely continue to reach new record levels of yarn imports. Currently a new record level of yarn imports is established almost monthly, and that trend will continue, at least on an annual basis. Demand is there as evidenced by the fact that exports continue to build on any price movement down to 83 cents and below.
Additionally, USDA, as expected, increased its estimate of U.S. exports by 100,000 bales, up to 10.5 million. Granted, the Department did so on the basis of increasing 2013 U.S. production the same 100,000 bales up to 11.2 million, thus keeping U.S. carryover at 3.0 million bales.
Yet, signs that exports will be even stronger race through the market almost every week. This week’s news was that actual shipments to date have climbed to the same level as those at the same time as last year when total exports totaled 13 million bales. USDA continues to resist increasing its estimate of exports in favor of keeping a minimum pipeline supply of cotton (U.S. carryover) at 3.0 million bales.
2013 world cotton production was forecast at 117 million bales, up 1.0 million bales from last month. USDA, after lowering Chinese production 500,000 bales last month, increased it one million bales this month. This increase accounted for the same 1.2 million bale increase in world carryover, climbing to the aforementioned 98 million.
Nevertheless, locating quality cotton remains a problem worldwide, and this shortage will continue to support the market within its current range. Additionally, the New York call sales report indicates a growing number of mill call sales that must be offset with buying futures. The market should be well supported within its current trading range.