Mar14 futures now approach 83 cents. After a steep decline and hovering around the 78 to 79 cent area for a while, prices have made a nice recovery. Prices are now the highest since mid-October.
March futures are now at a premium to May and July—signaling a stronger near-term demand. Basis is also good. Basis in the Southeast is now just 75 points under March for 41-4/34 and 250 points over for 31-3/35.
This recovery and strong basis may represent a good opportunity to make additional 2013 crop sales if you have remaining bales. It’s possible that prices will face a headwind as we approach the 83-84-85 cent area.
Dec. 10, USDA released its December estimates for production and supply/demand. The U.S. crop was lowered just slightly to 13.07 million bales. Some analysts were expecting the crop to get bigger, not smaller. Yield was lowered in eight states and the U.S. average yield was lowered from 808 to 806 pounds per acre. It was anticipated that U.S. exports would be increased but the projection remained the same at 10.4 million bales.
World production was lowered 390K bales. Use (demand) was raised just slightly, but projected World ending stocks were raised 700K bales. This was due to, as in previous recent monthly reports, to revisions from the 2012 crop year that were carried forward and increased beginning stocks for 2013-14 by almost 1 million bales. The burdensome stocks situation is worsening. The “tight stocks in the Rest of the World” (outside China) argument is slowly losing its case as USDA continues to find more cotton carried forward into the 2013-14 crop year.
The Chinese crop was lowered by 500,000 bales. There were no other changes (in imports or otherwise) for China. China’s ending stocks were lowered by the same 500,000 bales. India exports were increased by 500,000 bales.
Prices for next year’s crop (Dec14 futures) are still below 80 cents, or around 77 cents. This will not be attractive to most growers—but corn and soybeans are also down. Because of that, cotton may still get the nod on acres in some situations. In others, not.
I suspect cotton will have to get back to 80 cents or better to keep and attract acreage in 2014—but with record World stocks, how much acreage does the market really need to bid in. Maybe it doesn’t and if that’s the case, there’s not much reason for cotton to get in to an early bidding war for acres.