The first half of February has given us two new bits of information that reinforce a somewhat tighter picture for the 2015 U.S. cotton crop. It is not enough to result in a bullish outlook, but it has at least moved me from bearish to neutral.
First, the National Cotton Council released the results of their grower planting intentions survey. The survey measures cotton growers’ planting intentions as of the mid-December to mid-January time period. I consider the NCC planting intentions to be the first of several benchmarks in estimating U.S. cotton plantings. This year the NCC report indicates a notable 14.6 percent year-over-year reduction in U.S. planted cotton acreage, down to 9.43 million acres. This includes major reductions in upland plantings for regions such as the West (-46.6 percent), Mid-South (-25.9 percent), Southwest (-13.5 percent), and Southeast (-10.6 percent).
Some individual state reductions are surprisingly large – e.g., I am still wondering about the possibility of only 203,000 planted cotton acres in Arkansas. Also, the estimated 13.8 percent reduction in Texas plantings seems large to me. But, there is still time for either Mother Nature or market prices to influence these intentions. In other words, time will tell.
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The second development was the boost in U.S. cotton exports in the old crop balance sheet, as projected in USDA’s February WASDE report. Relative to the January projections, 2014/15 U.S. cotton exports were raised a notable 700,000 bales to 10.7 million. This has two effects on the new crop outlook. First, it supports the idea of having somewhat higher exports in the 2015 crop balance sheet. Second, it lowered the carry-in to the new crop balance sheet by 500,000 bales.
These two changes suggest a tightening of the 2015 cotton balance sheet on both the supply side and the demand side. I had been previously figuring about 9.75 million acres planted, lower than average abandonment, and larger than average yield. The result of that was roughly a 15 million- bale crop. With less than 14 million bales of U.S. consumption (i.e., domestic mill use and exports), I was looking for a rise in projected ending stocks, which would then lead to a neutral/bearish price outlook compared to the 2014 crop.
Assuming the possibility of lower cotton plantings, as suggested by the NCC survey, in addition to lower carry-in and maybe higher U.S. consumption, I am obliged to trim at least 500,000 bales from my projected new crop ending stocks. That brings me around to a neutral market outlook, i.e., no projected year-over-year change in ending stocks. This is still not great news, because it means I expect cotton prices for the 2015 crop to trade in the same range we are seeing for the 2014 crop. More specifically, I would project Dec. ’15 cotton futures to trade between 58 and 70 cents. I would not expect to see the higher end of the range until after planting is over.
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