USDA’s World Ag Outlook Board released their monthly World Agricultural Supply and Demand Estimates report on Friday (May 9). The May report is always the first of the year to provide forecasts of the new marketing year (July 1, 2014 through June 30, 2015 marketing year in this case for cotton). The crop currently being planted will largely fall into the new marketing year and therefore it offers the first outlook on production, imports, domestic consumption, exports, and the resulting carry-over into the next marketing year.
Now, understandably, little is known about the crop that is in the process of being planted. Acreage is from the March 31 Prospective Plantings report, but even those numbers might change. Yields are derived from historical trends. Consumption values (domestic use, imports, and exports) are based on typical movement with some level of subjectiveness based on current bookings. So, much is still up in the air with current crop.
With that said, the new cotton projections are calling for a 14.5 million bale production from U.S. growers. This is based on a national average yield of 824 pounds per acre and 8.45 million harvested acres (76% of all planted acres). Domestic cotton use is projected at 3.7 million bales (up 100,000 from the previous marketing year). Cotton exports are projected to be down 700,000 from the last marketing year at 9.7 million bales. Ending stocks would come in at 3.9 million bales based on these numbers, or 29% of total use.
The current marketing year (July 2013-June 2014) vales were altered just a bit. Acres harvested were lowered slightly from 7.66 million in April’s report to 7.54 million, while yield was raised from 806 to 821 pounds per acre. The most note bale change was a reduction in U.S. exports from 10.7 million bales estimated last month to 10.4 million in this report. Talk of China scaling back their imports along with a moderately higher dollar were the likely culprits of this change. This pushed 2013/14 ending stocks up to 2.8 million bales, compared to 2.5 last month, which is a 20% stocks-to-use ratio.
Globally, few changes were made. Ending stocks were raised slightly, from 96.75 in April to 97.91 this month. The reason was the higher U.S. ending stocks and 750,000 more stocks in China.This leaves China holding 61% of the 2013/14 marketing year inventories.
The projections for the global 2014/15 supply and demand shows 115.46 million bales of production compared to 117.13 million bales for 2013/14. The most notable change here is a pull back in Chinese production from 32 million bales last year to an expected 29.5 million in the upcoming marketing year. Total world use is forecast at 111.83 million bales versus 109.38 last year and total ending stocks are at 101.66 million bales compared to the 97.91 mentioned earlier. Market analysts were looking for global ending stocks to be 99.6 million bales, so the reported value was a bit higher.
Overall, the report was bearish for the cotton market. The higher U.S. and global ending stocks weighed on the market as everyone continues to try an figure out what to do with all these bales in inventory.