The much talked about 2017 Prospective Plantings Report for U.S. cotton was released Friday with little fanfare. The report indicated growers would plant 12.2 million acres, up 21 percent from 2016 and had been expected by most market participants. This represents an increase of 2.16 million acres above the prior year’s plantings and is reflective of 2016 yields, quality and prices. Note that increase in cotton planting was at the expense of corn and wheat.
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First and foremost the plantings represents a price response, but growers also noted exceptional yields and the quality of the 2016 crop. Major increases were across all states with Texas showing an increase of 1,250,000 acres, up 22 percent from 2016. This sets the stage for December futures to continue a very slow price deterioration into actual plantings. However, while Mother Nature has provided an abundance of subsoil moisture, she has been slow this spring to providing planting moisture. Much of the U.S. is deficient in topsoil moisture, but the time period is ripe for moisture: “April Showers Bring May Flowers.”
U.S. export sales continue, as they have all year, on track to reach 16 million bales. We have said since November that actual shipments would not reach that level and frankly are surprised that the pace has lasted year long. However, the pace of shipments does project to 14 million bales and that has been a target since November. We should expect to see U.S. exports climb to 14 million bales during the current 2016-17 marketing season.
While it has been more painful than pulling teeth to get USDA on the exports bandwagon, they did make an unprecedented adjustment last month and increased their estimate 500,000 bales, up to 13.2 million bales.
Last week, we suggested that the U.S. export number would be 13.7 or higher, but it is “the higher” that must be forecast now. As stated all year, the record quality crop harvested by U.S. growers in 2016 came at a perfect time for world import needs and global mills have scrambled all year to obtain the high quality, relatively underpriced U.S. production. Thus, USDA will eventually lower its U.S. ending carryover from the current 4.5 million bale estimate to 3.7-3.8 million bales. Essentially, the U.S. will sell every single bale produced in 2016. The U.S. has enjoyed essentially two months of weekly export sales totaling about half a million bales each week.
Net export sales for the week ending 3/23/2017 were 392,300 RB of Upland and 10,100 RB of Pima. Sales for marketing year 2017-18 totaled 85,200 RB. Sales to Vietnam, Turkey, China, India and Bangladesh lead the way. It has been the sales to China and India that were underestimated by USDA, although the general desire for the high quality U.S. crop was also underestimated. Export shipments continue bursting at the seams as weekly Upland shipments totaled 394,000 RB and Pima deliveries were 8,100 RB. With more than seventeen weeks left in the marketing year, more than a quarter of the year, export sales and shipments already 13 million bales. Thus, the seemingly otherwise “outlandish” export forecasts I present are well within reach and consistent with recent trends. Too, the U.S. is benefiting from problems in Australia and India.
The on-call sales accumulation continue as a bullish fundamental in the market, but it is clear the big funds and small speculators are letting the mills out of the market. With end of the month and end of the quarter profit taking to shore up their books and record very large profits, funds have allowed mills to somewhat alleviate their troubles. May on-call sales were reduced 5,502 contracts on the week and the ratio of on-call sales to on-call purchases was lowered to a manageable 10 to 1 ratio. However, mills somewhat kicked the can down the road as July on-calls sales increased 1,015 contracts meaning that the price of some 450,000 bales must be fixed by mid-June on the July contract alone. Thus, the old crop July contract will continue to find good support from both export sales and on-call mills sales. While the market highs are in, the market will not be diving lower. Old crop price slippage can be expected, but it will be limited.
More news has been forthcoming from the Sea Grant Consortium in the United States. Cotton and all of U.S. agriculture has been a primary benefactor of excellent research from the U.S. Land Grant system. We have written in the past regarding some companies desire to manufacture and sale cheaply constructed garments of polyester, further noting the very high profit potential that drives those companies to promote inferior products. Too, as those same companies began to see the handwriting on the wall with respect to their liability of pollution they have poured billions of dollars into an advertisement program they reference as “sustainability.”
Now, the cousin to the Land Grants, the newer Sea Grant university research is beginning to compile a long list problems created for sea life and for world water resources created by “plastic fiber.” That is the production of polyester, a highly non-sustainable fiber. Specifically, this plastic fiber is polyester and it is now being found in the gills and body tissues of sea life. Thus, while Nike and Adidas have become the world leaders manufacturing and marketers of casual attire and providing at no cost (as in free) such products for Land Grant and other University sporting teams, those same companies must now face the widespread pollution they are causing to local environments as well as to the world seas. Mother Nature’s natural fiber, cotton, has lost significant market share to that same plastic fiber and losses continues to escalate. There is a bit of irony that the Sea Grant University may have to save the cotton industry, an industry actually built by the Land Grants. Cotton will survive. Its production is very resource efficient and it is the world’s primary sustainable and environmentally friendly fiber.
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