Shurley On Cotton: 80 Cents Is A Good Place To Start Pricing
New crop (Dec14 futures) prices seem to have fully recovered from the most recent threat of 76 cents back in early February. Prices have now trended above the 80-cent level for the first time since last October. Dec14 closed at 81.37 today after breaking 81 on Friday.
Eighty cents net to the producer has been our target and we are there. No one is happy with just 80 cents – not a lot of profit margin at that level. But you have start somewhere and this may be a good place to make your first stab at 2014 crop pricing. Basis is very — as small as 50 to 75 points under in some cases.
- April USDA Numbers. The most recent production and supply/demand projections were released on Wednesday of last week. Here are the highlights:
- US yield for the 2013 crop was lowered 20 lbs per acre to 806 lbs. The crop was reduced to 12.87 million balesâ€”about 300K bales less than the previous estimate.
- As a result, stocks going in to the 2014 crop marketing year were reduced to 2.5 million balesâ€”the smallest carry-in since 1991.
- World cotton usage (demand) was increased 240K bales.
- China’s imports were increased 1 million bales but Usage was unchanged. Ending stocks were raised by 1 million bales.
- World ending stocks (2014 crop year carry-in) were raised slightly but stocks outside of China were lowered (tightened) to 830K bales.
Market Outlook Factors. Despite recent and welcomed improvement, the outlook remains guarded. The expected range on prices (Dec14 futures) is 75 to 85 cents. The most pessimistic outlook would be generated by increased US and World production, flat and slow-improving demand, and increased use of stocks by China (which would lower US exports). A more optimistic scenario would be the result of lower US and World production, more improvement in demand, and China policies that would not result in significantly lower imports.
This market is comfortable at the 79- to 80-cent area, having spent the better part of the last 6 weeks in that area. This â€