Doane Cotton Close: Modestly Higher Thanks to Foreign Trade And USDA Forecast
The cotton market finished modestly higher on Tuesday. Trade was two-sided overnight and through the day session, drifting back and forth between positive and negative territory. July added 34 points to close at 79.16 cents and December was up 63 points at 77.33 cents. Buyers are stepping in to take advantage of the sharply lower prices, which fell 9 to 10 cents last week as welcomed rain fell across west Texas and into the panhandle.
Also contributing to last week’s sell-off were the bearish USDA forecasts, which pegged world cotton stocks at a record high for 2012/13. These large world stocks will continue to weigh on prices, but concerns over dryness are resurfacing, and look to worsen rather than improve. Current forecasts call for warmer and drier conditions in Texas, which are expected to increase evaporation and result in a loss of much of the moisture that was accumulated the last ten days.
Additionally, Georgia is under extreme drought conditions across much of the southern two-thirds of the state, and there looks to be no sign of relief of there either. Together these two states account for well over half of the U.S. cotton crop, and despite the bearish world stocks another very tough production year in the U.S. would support domestic prices.
Monday’s weekly crop progress report from USDA shows 48% of cotton planted vs. just 38% a year ago at this time, and the 5-year avg. of 39%. Nearly all states are ahead of their average paces individually, with the Delta and southeast holding particularly fast paces. Last week USDA made minor changes to the 2011 crop production to reflect final ginnings figures out in late March.
The planted acres for 2011 were little changed at 14.74 million. However, the harvested acres declined to 9.46 million from the previous forecast at 9.75 million. Total production of 15.57 million bales compared to 15.56 million estimated in April. The national yield for 2011 increased to 790 pounds per acre from the previous forecast at 766 pounds.
In its first look at 2012 production, USDA used the plantings report of 13.16 million acres. It forecasts abandonment at 20.2% or 2.66 million acres, resulting in harvested acres of 10.5 million. The national yield forecast is at 777 pounds. Harvested acreage and yield are based on three years of history, 2009/10-2011/12, and are weighted by region to reflect the Texas drought situation.
This results in a production figure of 17.00 million bales. For the 2011/12 supply/demand, USDA left use unchanged at 14.8 million bales and the carryout unchanged at 3.4 million bales. In its first supply/demand analysis for 2012/13, USDA forecasts total supply at 20.4 million bales, up from 18.2 million in 2011/12. Consumption for exports increases to 12.0 million bales from 11.4 million.
Domestic use is up 100,000 bales to 3.5 million. Despite an increase of 700,000 bales in total use, the ending stocks forecast increases to 4.9 million bales. USDA forecasts 2012/13 prices to range from 65.0 to 85.0 cents. Last week’s export report was good, with total 2011/12 sales of 105,915 running bales and shipments were a solid 345,211 running bales.