Farm Progress

U.S. cotton exports have increased in recent weeks due to demand in foreign mills for low-contaminant, high quality cotton, which is in short supply.

Elton Robinson 1, Editor

February 11, 2015

3 Min Read

Weekly U.S. cotton export sales have soared in recent months with foreign mills eager for high quality, low-contaminant fiber, which is in short supply.

The result has been a 5-6 cent rally in old-crop futures, says Calcot President Jarral Neeper, speaking at the Ag Market Network’s February conference call.

Machine-picked falls into the low-contaminant category, Neeper said, and typically it’s supplied by three countries, the United States, Brazil and Australia.

This year, smaller crops in Brazil and Australia have put the United States in the driver’s seat for increased exports, Neeper said. Cotton production from all three countries has fallen from a projected 25.9 million bales in May 2014 to 21.8 million bales in February, a decline of 4 million bales.

“With the need to have cleaner cotton with the spinning technology out there, U.S. cotton is in high demand right now,” Neeper said. “That’s helped support prices and helped support the basis in the countryside, particularly on the longer staple, stronger fiber cotton.”

USDA February report

In February, USDA raised total world cotton production for 2014-15 by 206,000 bales, mostly due a larger Pakistani crop. That raised world production slightly to 119.4 million bales, which if realized, would be the first time in four years that global production is below 120 million bales.

After high cotton prices of 2010, world production peaked in 2011 at 127.5 million bales.

Meanwhile, USDA reduced world consumption by a million bales, to 111.3 million bales, primarily from a million-bale reduction in China, resulting in an 8-million bale surplus for 2014-15. In May 2014, USDA projected a surplus of 3.7 million bales.

“A year ago, new crop May was trading at 82 cents. Now we’re at 62 cents, down 20 cents from May of 2014,” Neeper said.

Bullish versus bearish scenarios

Cotton export sales have amounted to almost 2 million bales over the last couple of months, resulting in USDA increasing its estimate for annual exports in 2014-15. The numbers “are just phenomenal,” Neeper said. “You have drought in Australia and the Brazilian crop is down.”

Other bullish factors includes Chinese purchases of U.S. cotton, “and the National Cotton Council’s acreage survey suggesting that U.S. acres would be down almost 15 percent from a year ago. They projected a crop of only 14 million bales.”

On the bearish side, Neeper says, “The U.S. dollar is much stronger that it has been in quite some time. Polyester is very cheap, in the low 50s. We have large world stocks, most of which is in China.”

U.S. and Turkish governments have clashed over trade in recent months, and cotton is part of that story. Last October, the U.S. International Trade Commission ruled that U.S. producers of steel concrete reinforcing bar (rebar) were being harmed by Turkish imports illegally subsidized by that country’s government. Neeper said the Turkish government responded with a probe into possible dumping of U.S. cotton into the country.

“Turkey has been a very good consumer of U.S. cotton over the years, and if we lose that market, it’s going to put a big hole in U.S. exports.”

Rebalancing supply and demand

Neeper said the trade “has been a very heavy seller as the market has rallied and they’ve gotten their hands on cotton. Cotton could make a run up to the 66-68 cent range, where it will run into a load of resistance from a technical perspective.”

Neeper said new crop prices “are going to keep this market somewhat subdued. If the job of the market is to keep acres from being planted here and around the world, new crop December is going to have to stay under 65 cents, at least through the planting period, to keep China, India and Pakistan from planting too much cotton this year. Hopefully, we’ll get our global stocks back in balance.”

If acres decline significantly in 2015, Neeper says the world could produce as few as 108 million bales in 2015. “Hopefully, consumption can make its way to 114 million to 115 million bales, and we can start working ending stocks down below 100 million bales. Right now, we have almost a year’s supply of cotton sitting in the pipeline.”

About the Author(s)

Elton Robinson 1

Editor, Delta Farm Press

Elton joined Delta Farm Press in March 1993, and was named editor of the publication in July 1997. He writes about agriculture-related issues for cotton, corn, soybean, rice and wheat producers in west Tennessee, Arkansas, Mississippi, Louisiana and southeast Missouri. Elton worked as editor of a weekly community newspaper and wrote for a monthly cotton magazine prior to Delta Farm Press. Elton and his wife, Stephony, live in Atoka, Tenn., 30 miles north of Memphis. They have three grown sons, Ryan Robinson, Nick Gatlin and Will Gatlin.

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