USDA’s September WASDE report had its share of surprises. The world cotton supply and demand numbers showed modest tightening compared to August. The new crop world numbers reflected net higher production month-over-month, mostly in the U.S., Australia and Argentina (offsetting decreased production in India, West Africa, and Greece). The world trade categories were a half million bales higher than the August forecast. World consumption was up 810,000 bales, mostly in Pakistan, Bangladesh, Brazil, and Turkey, while there was a partial offset with lower consumption in COVID-affected Vietnam. Those first three countries were also adjusted higher in 20/21 consumption, which carried into the 21/22 balance sheet as higher beginning stocks. The bottom line was that world-ending stocks were a modest 550,000 bales lower, month-over-month, which is fundamentally price neutral/supportive in the monthly adjustment.
The U.S. new crop picture changed much more substantially and unexpectedly. First, the old crop carry-in was cut 50,000 bales month-over-month because of lowered old crop exports. Forecasted new crop production was raised 1.25 million bales, or about 7%, which was higher than pre-report expectations. This outcome happened despite 5% and 4% cuts to planted and harvested acres, respectively, as NASS reconciled its numbers with FSA certified acres. With abandonment little changed from August to September, the explanation for the increase in production was mostly due to a huge 95-pound per acre increase in average U.S. yield, spearheaded by higher forecasted yields in Texas.
The basis for the yield increase was NASS’s objective yield field sampling, which in Texas involved 491 samples of 40 feet of row, counting bolls of various sizes and maturity. The remaining adjustment to the U.S. balance sheet was a 500,000-bale increase in projected exports, which was justified by both having larger exportable surpluses and recent export demand. The bottom line of all these adjustments was a 700,000-bale increase in projected U.S. ending stocks, which would ordinarily be a price negative monthly adjustment. It also takes the edge off the previously tight ending stocks level.
An “October surprise” ordinarily refers to late-breaking news, e.g., a political scandal, that influences the outcome of a fall election. In terms of cotton marketing, the issue is whether this coming October will bring an early, average, or late first freeze to the Southern Plains, and what kind of weather will precede it. Having perfect sunny and dry weather on the way towards an average/late freeze date will probably realize the level of production and ending stocks that USDA has forecasted. On the other extreme, cooler and wetter weather this fall, and/or an early freeze could lower the yield potential and tighten the balance sheet.
The possible extremes of the production and ending stocks question could give an ICE cotton price ranging from the upper 80s to the upper 90s.
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