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Cotton Comments After the June 2017 WASDE

Posted By Doane Advisory Services | June 12, 2017 6:25 PM CDT


We at Doane must admit to being surprised that USDA did not once again boost its 2016/17 cotton export forecast on the June WASDE report. The ag department left that figure at 14.5 million bales, despite the fact that recent commitments and shipment totals suggest a rise to the 14.7-14.8 million bale range in the weeks ahead. We are sticking with our forecasts in that area, which in turn would imply an old-crop carry-out at or just below 3.0 million bales. But USDA also left its 2016/17 ending stocks forecast at 3.2 million bales. Actually, the only change USDA made to the old-crop data was to lower the 2016/17 price estimate from 69.00 cents to 68.50 cents/pound, thereby reflecting the price losses posted over the past few weeks.

As was to be expected, USDA analysts made no changes to their initial forecasts for U.S. new-crop cotton plantings, yields or production. Things will change on June 30, when the USDA publishes its annual Acreage report, when it releases its first survey of actual planted acres. The yield estimate probably won’t change until the August Crop Production report is released.

In fact, the only change in new-crop product supply and usage was a surprising 500,000-bale reduction in the 2017/18 U.S. cotton export forecast, now at 13.5 million bales. That would mark a 1.0 million bale reduction from USDA’s old-crop estimate. With all the other numbers remaining unchanged, that drop flowed through to the carry-out forecast, which rose commensurately to 5.5 million bales. Despite the fact that USDA also left its projected price range for the 2017/18 average unchanged between 54.00 cents and 74.00 cents/pound, the carry-out forecast weighed on cotton futures.

On the international front, USDA made only modest changes to its old-crop cotton numbers. Global production for 2016/17 was boosted by 110,000 bales to 105.99 million bales, while worldwide usage was raised 370,000 to 113.57 million. When combined with other slight adjustments, the old-crop carry-out dipped 180,000 to 89.34 million bales.

As for the 2017/18 outlook, USDA added 1.51 million bales to its global production outlook, which now stands at 114.73 million. Additions of 500,000 bales and 800,000 bales to the Chinese and Pakistani production forecasts, respectively, accounted for the bulk of that increase. USDA also boosted projected global usage from 115.75 million to 116.51 million bales (up 760,000).  The rise incorporated 200,000 bale gains in Indian and Pakistani usage, as well as a 500,000 bales surge in Chinese consumption. The net result of the various shifts was a 670,000 bale increase in the global carry-out forecast, now at 87.71 million bales. That’s still very large by historical standards, as indicated by the ending stocks to usage percentage at 75%. The global numbers clearly weren’t helpful to the bullish cause either.