What is in this article?:
- Weather, China will be key influences on cottonâ€™s future
- Export numbers should be up
- Sees terrific demand
- Good reason to be optimistic
• Long range weather patterns are suggesting that West Texas and the Southwest will remain dry, says O. A. Cleveland, Jr., and “some of that drought is going to ease over into the Delta area and move on eastward across the entire Cotton Belt,” which will have an influence on the market in months ahead.
• China's rebuilding of its strategic cotton reserve and reduced cotton plantings worldwide will also play a role in where the market goes, says the Mississippi State University Extension economist emeritus.
Export numbers should be up
And Cleveland says, “We would anticipate exports would be up slightly this coming season. The increase would come largely as a result of the drop we’re anticipating in planted acres in China and around the globe because of strong soybean and corn prices. We’ll probably also see China concentrate more acres on grain crops, because they’re still trying to get a better hold on their food supply situation.
“We’re not out of the woods, by any stretch of the imagination, in terms of having soybean and corn carryover supplies that the market would be comfortable with.”
The drop in cotton carryover two years ago to about a 42 million bales “was extremely low, and that’s what led to $1-$2 cotton,” Cleveland says.
Over the last 18 months, world carryover has increased about 18 million bales — which is about the same amount the Chinese took from their strategic reserve about two years ago to fulfill their textile production needs (that’s one reason they increased their planted acres so much last year).
“We’re also starting to see reports out of China suggesting their current crop may be about 3 million bales lower than USDA’s figure. But it’s hard to judge this, because a couple of times in the past we’ve had similar information out of China and it turned out that USDA’s numbers were actually better.”
If the China figure is accurate, however, Cleveland says, “That may be the reason the market is now starting to move back up just a bit.”
Pakistan, India, Brazil will all reduce plantings this coming season, he says, and at the same time, “We’re seeing stronger infrastructure with respect to East Asian textile mills — Vietnam, Cambodia, Laos, Myanmar, some of these countries are starting to rival China in textile production, and are beginning to take business away from China.
“China initially got all the textile business because of their low labor costs, but as the country has developed more, the textile sector has looked to other countries with lower labor costs, and some of the business is tending to move away.
“Even so, with China’s immense population, there’s not much possibility that we’re going to see a drastic change in their mill consumption.”
China maintains a strategic reserve of cotton, Cleveland says, “simply because they need it to keep their textile mills operating. Eighteen to 24 months ago, they used basically all the cotton in that reserve, and they’ve been buying cotton to rebuild those supplies. They’ll put it in warehouses and keep it maybe six years before they ever spin it.
“They’ve already bought about 12 million bales, and will probably buy another 6 million to 8 million bales during the coming months — over and above what they need for spinning in their textile mills — in order to rebuild their reserves.”
When the market dropped below $1, Cleveland says, “China began to buy massive amounts of cotton, and they’ve continued to buy at those price levels. On Jan. 9 and Jan. 12, March cotton went below 94 cents and with each drop there were massive export sales; the Chinese bought tons of cotton on both of those drops.