Cotton prices (new crop Dec14 futures) continue to show improvement since the lows back in early and late February. Dec14 flirted with the 80-cent mark all last week—closing the week at 79.84.

This week will test whether or not there’s enough bullish optimism to move even higher or whether prices will retreat, which was the case back in mid-January when we last hit 80 cents.

With contract basis being very favorable, this move to near 80 cents may coax some producers into beginning bale contracts on a portion of expected 2014 production. A move above 80 cents this week, should that occur, could make that action even more likely.

USDA released its March crop production and supply/demand estimates last Monday. Of significance, U.S. 2013-14 crop year exports were raised 200,000 bales to 10.7 million bales. This has been anticipated for some time in light continued exports above the pace of earlier estimates. This tightens US stocks going into the 2014 crop marketing year down to only 2.8 million bales.

World use (demand) was lowered from 109.5 to 109.2 million bales. This is accounted for mostly by a ½ million bale decrease in China’s use. There was also a ½ million bale decrease for Pakistan while the projected use for India was up 250,000 bales. Projected usage was also adjusted upward in several smaller countries. Projected World ending stocks was increased 280,000 bales to 96.75 million bales (China’s ending stocks were increased 500,000 bales to 57.81 million bales).

From 2009-2010 to 2011-2012, World usage of cotton declined from 119 million bales to 103 million bales. It is expected that this was due to high cotton prices during that period.

The record-high usage was 124 million bales in 2006-2007 followed by 123.6 million bales the following year in 2007-2008. The usage for cotton has been in a downtrend since then.

Since the 2011 crop year, demand for cotton has now begun to slowly improve. Use for the 2013 crop year is projected at 109.2 million bales.

One designer is not a good sample size

An interesting article by Reuters came through my email last week.

The article begins with the statement “Cotton is no longer king in the U.S. apparel industry.” The article goes on to discuss the use of synthetic fibers, the change in synthetic fibers since the old polyester days, and the proposed change in consumer preference or lack of preference by some consumers between cotton and synthetics.

Quoting from the article—“US buyers imported 12.29 billion square-meter equivalents worth of cotton apparel last year compared to 12.04 billion of apparel made from man-made fibers. The trend is clear; synthetic imports have risen more that 20 percent over the past three years; cotton imports have fallen by 14 percent”.

A couple of observations from me:

  • The article is discussing the apparel industry and uses of cotton. There are many other uses of cotton that are important to the overall demand equation.
  • But, clearly the trend in the apparel industry is concerning. I have advocated all along that regardless of cotton’s price position relative to synthetics, the best thing cotton had going for it was that consumers prefer to wear cotton. As long as this is the case, cotton will be fine. If that preference begins to erode (and that’s what the article is suggesting), then cotton demand/use may decline.
  • The article quotes a fashion designer whose clothes sell at Neiman Marcus and Saks Fifth Avenue as saying that “fashion-savvy” consumers are comfortable wearing polyester. I’m not sure this sample size represents the US general populace.

The purpose of this discussion is to note that the demand side of the equation is too often overlooked. We have a large buildup of World stocks and China has been able to build stocks because cotton production has outpaced cotton usage for 4 consecutive years dating back to 2010-11.

Demand is starting to improve as the price of cotton has moderated. But there’s only so much “moderating” in price that we can stand from a producer standpoint.