Rose on Cotton: Supply Demand Report Increase in Carryout is a Mystery
The below excerpts were published on our webpage in yesterday’s daily report, and are verifiable.
“…while we expect the USDA will project 2014/15 US production at 15.1M bales, given the worsening droughts in TX and CA, coupled with acreage reductions on the Mar 31 USDA Prospective Plantings report, we will not be shocked if the official projection for 2014 production is closer to 14.5M than to 15.1 M bales…”
“…over the four US cotton export reports released since the April WASDE release, total net sales of US cotton have averaged approximately 83K RBs per week, in excess of 35K RBs per week currently required to meet the USDA’s 10.7M bale export projection. Hence, the USDA could rationalize raising its 2013/14 export projection a bit and thus lower 2013/14 ending stocks…”
The first passage might belie some level of analytical astuteness or acute insight while the second one, well…silly me. Perhaps “rationalize” and “USDA” do not naturally occupy the same sentence, or paragraph, space.
Our in-house estimate, when applying the Mar 31 USDA Prospective Planting Survey results and some extrapolation to yield and abandonment yielded US production at 14.67M bales for all cotton. We expected the USDA to be a bit more generous until the planting window had elapsed.
The chronology on the continued lowering (until now) of 2013/14 ending stocks has taken the following form:
- 1/16/2014 – 2/6/2014: US export sales for the period total 1.3M RBs
- 2/10/2014: USDA declines to adjust US export projection and carryout after continued lobbying from the trade to do so
- 2/13/2014 – 3/6/2014: US export sales for the period total 371K RBs (28.5% of the immediately prior 4-week period)
- 3/10/2014: USDA raises US export projection and lowers US carryout to 2.8M bales, citing “…The export forecast is raised to 10.7 million bales based on strong activity in recent weeks…”
- 3/13/2014 – 4/3/2014: US export sales for the period total 172K RBs, but sales and shipments either meet or exceed the pace required to meet the 10.7M bale projection
- 4/9/2013: USDA reduces US 2013/14 carryout to 2.5M bales on reduced production via the final seasonal cotton ginning report
- 4/10/2014 – 5/1/2014: In the face of increasing certificated stocks and a seemingly lack of competitiveness of US cotton for export, US export sales for the period total 332K RBs with net sales and shipments far exceeding the pace required to meet a 10.7M bale projection
- 5/9/2014: USDA reduces 2013/14 ending stocks (and thus 2014/15 beginning stocks) via a reduction in its export projection for 2013/14, citing, “…China’s imports and India’s exports are raised, but U.S. exports are reduced 300,000 bales due to the recent fall-off in sales…”
Now, exactly which period corresponds to the “recent fall-off in sales” that has continually either met or exceeded the required pace to sell and ship at least 10.7M bales by July 31? If any of our readers can clear this up, please let us know!
This column has been penned for the better portion of a year, and if one reviews past issues, nary a “potshot” has been taken at the USDA therein. We respect the challenging nature of the work that they are tasked with, and have developed a genuine liking for most of the USDA staff we have had the pleasure to work with.
Still, it occurs to us that the USDA employed plenty of wisely cautious “wait and see attitude” prior to reducing US old crop carryout, but nary a smidgen when opting to raise it. We are uncertain if it was the tea leaves, tarot cards or the Ouija board (the latter being the most reliable of the three by virtue of the clearly marked “yes”, “no” and Arabic numerals that are etched on the face of the board) that they misread in making this prognostication. I am, of course, being facetious, but today’s increase of US carryout mystifies.
Further, while laughter is often the finest of medicines, the opportunity cost to US cotton producers is no laughing matter. In the face of numerous struggles from drought to floods and the challenging nature of marketing this year’s crop, we think the US producer should not have to suffer casualty via “friendly fire”.
The market wisely discounted today’s report results; in fact, Dec struggled to a 20 point gain on the day. But we were facing an old crop market that had worked off a significant amount of its accrued overbought condition and was ready to challenge, if not breach the 85.00 level today, had only reasonable projections and estimates been put forth. Sadly, it is the US cotton producer who must persevere yet another setback beyond his control.
Given today’s report results, analysis will take a bit more time and reflection than usual; we will publish these tomorrow morning in our weekly complimentary report.
At this time, we expect the market to discount today’s report, and we further expect that any significant market retracements will be met with on-call fixations and fresh physical business.
In the long run today’s gaffe may turn out to be the most bullish action that the USDA could have taken. Things have a way of working themselves out.
Time will tell.