The January WASDE report from USDA showed a continuation of tightening world cotton. Beginning stocks were decreased 200,000 bales in Bangladesh, which outweighed a small increase in West Africa. The U.S. (-100,000 bales), Turkey (-200,000 bales), Australia (-170,000 bales), Pakistan (-100,000 bales), and West Africa (-50,000 bales) all saw reductions in projected production of the 2019 crop.
World cotton imports and exports were slightly lower as a result of mixed increases and decreases in various counties. World domestic use was negligibly lower. The bottom line of all this was a modest 730,000 bale decrease in world ending stocks, which is fundamentally price neutral, at least in terms of the monthly adjustment. There is still a lot of cotton in the world, with current projections of production and ending stocks representing the fifth and sixth highest levels in history.
For the third month in a row, USDA’s tightening picture included lower U.S. cotton production and ending stocks, although the January forecast represented only a 100,000 bale cut. Still it represents 1.6 million fewer bales of ending stocks over the last three months. The resulting 2019/20 ending stocks is within a million bales of the previous marketing year. In other words, ending stocks are treading water year-over-year, which is essentially a price neutral outcome.
This outcome takes away the likelihood of old crop futures either rising or falling very dramatically from their present range. Until there is evidence of new and substantial export sales of U.S. cotton to China, I expect futures will retreat and trade between the upper 60s and low 70s.
For additional thoughts on these and other cotton marketing topics, please visit my weekly on-line newsletter at http://agrilife.org/cottonmarketing/.