Global Markets: Cotton – USDA Revises Australia, Brazil Residuals, Reduces Global Stocks

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This month’s WASDE includes significant revisions to USDA’s loss attribute for Australia and Brazil beginning in 2010/11. The cumulative effect of these changes is equivalent to a stocks reduction of 1.25 million bales by 2017/18, which would be about 2 percent of total world stocks, however, other balance sheet changes mostly offset this adjustment.

In Brazil and Australia, USDA has historically maintained significant negative losses. Losses or residuals are carried for countries when stocks estimated from the balance sheet flows do not match estimates of stocks based on direct observation or market conditions.

In these cases, negative losses for past years reflected a variety of factors, including incomplete coverage of growing regions or gins, changes in moisture content, and deficiencies in data reporting from official sources, collectively believed to result in a net underestimation of production.

USDA has now determined that these statistical residuals are no longer necessary as data quality has improved for many countries around the world over the last decade, including Australia and Brazil.

USDA internal local-marketing-year balance sheet calculations further suggest that these negative losses served to inflate WASDE-reported stocks relative to actual local market conditions; that is, trade patterns suggested the monthly low point in stocks was lower than the loss-inclusive balance sheet indicated.

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In Brazil in particular, it is observed that removing this loss estimate brings WASDE more in line with both government and industry estimates of stock-holding.

Although phasing out these residuals results in a combined downward adjustment in 2017/18 in these two countries of 1.25 million bales, year-over-year changes in stocks are little changed. Combined with higher production, Brazil’s 2017/18 ending stocks are lowered just 300,000 bales, to 8.0 million. Combined with a lower export forecast, Australia’s 2017/18 ending stocks are lowered 100,000 bales.

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