USDA’s October supply and demand numbers showed yet another round of modest tightening in the 2021/22 crop balance sheet for world cotton. The new crop world numbers started off with a million bale reduction in beginning stocks. (This happened mostly in India, reflecting longstanding thought by many cotton analysts that USDA has been overestimating supplies in India for several years.) World production was raised almost 700,000 bales, month-over-month, where increases in Pakistan (1.5 million bales) and Turkey (200,000 bales) were partially offset by half million bale cuts in both the U.S. and India.
On the world demand side, the trade categories were each 300,000-plus bales lower than the September forecast, reversing the recent trend. World consumption was down almost three quarters of a million bales resulting from decreases in China (1,000,000 bales) and Vietnam (200,000 bales) that were partially offset by smaller increases in Pakistan, Turkey, and a few other countries.
The bottom line was that world ending stocks were a modest 450,000 bales higher, month-over-month, which is fundamentally price neutral-to-bearish in the monthly adjustment. In particular, the lower consumption appeared to be bearishly interpreted by traders, perhaps because it confirmed a recent pattern of smaller export demand.
The U.S. new crop picture saw mostly expected adjustments on the supply side. Forecasted U.S. production was cut a half million bales, month over month. This outcome was due to a 24 pound per acre decrease in average U.S. yield, mostly in Texas. As in September, the basis for the yield adjustment was NASS’s objective yield field sampling, which in Texas involved 512 samples of 40 feet of row, counting bolls of various sizes and maturity. There were no adjustments to U.S. domestic use, exports, or unaccounted, so the cut in production went straight to the bottom line, reducing ending stocks to 3.2 million bales. Such an adjustment is price supportive in both the adjustment itself as well as the resulting low level.
Taken together, the world and U.S. adjustments gave the market a mixed bag. This appears to coincide with a period of market price consolidation and re-orientation. It is likely that the next several weeks’ worth of export sales reports could be influential in shaping up the demand picture. Likewise, the next several U.S. cotton production reports, bolstered by data on the pace of ginnings, will refine the forecast of U.S. production. As the uncertainty clears away, the risk premium in the market may also fade, less under the influence of speculators as the revealed fundamentals.
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