Cotton futures continue to excel upward in a rally that began back in April, with still no sign of a top.
Front month March futures prices are near 85 cents per pound, up from 52 cents per pound back in March.
U.S. cotton demand remains strong, while supplies of cotton have been reduced due to a combination of less production and strong export demand. The result is that ending stocks are nearly cut in half from year ago levels.
On the recent USDA report, the USDA provided little major new market announcements. U.S. cotton 2020/21 production levels were kept the same as the month prior, coming in at 14.95 million bales. Demand for exports was improved by 250,000 bales to 15.50 million bales. There was also an overall reduction in ending stocks, now pegged at 4.3 million bales, down from 4.60 in January. (Compare that to ending stocks from just two years ago, when they were up at a staggering 7.25 million bushels!)
Global carryout levels were also reduced, now coming in at 95.74 million bales, down from 96.32 the month prior.
Thanks to a lower U.S. Dollar, and strong overseas demand, the outlook for cotton remains friendly. As the world slowly begins to spin again as COVID-19 vaccines are administered globally, the desire to step back out with new clothes ahead of the summer fashion season is helping demand. Textile and clothing factories are back up and running with many retailers likely trying to peg potential pent up consumer demand for merchandise.
In addition, cotton futures have been furiously rallying in an effort to buy acres, facing competition from high priced soybeans. U.S. planted cotton acres have already been trending lower over the past few years. In the 2018/19 season, 14.10 million acres were planted in the United States. In 2019/20, there were 13.74 million acres planted. And during the 2020/21 season, 12.09 million acres were planted. Current industry chatter is pegging 2021/22 U.S. planted acres to be lower yet again, near 11.5 million acres, with nearly every U.S. producing state likely to see slight reductions in cotton acres. I’m very curious to see what the USDA will say about the matter at next week’s USDA Outlook forum, when they throw out their initial guestimates for U.S. spring planted acres for grains and row crops.
The bottom line, with no sign of a top, cotton futures look poised to continue a slow grind higher in the weeks ahead.