USDA raises forecast of US cotton supplies
July 14, 2013
The US government raised its forecasts for US cotton inventories on the back of reduced export estimates in the current crop year and upped its projections for ballooning global supplies amid higher output and falling consumption.
The forecasts in the July US Department of Agriculture (USDA) report was seen as bearish for prices, particularly as it reflected a less friendly balance sheet in the United States following a previous forecast of tightening supplies in the world’s top exporter.
Expectations for the US surplus, known as the carryover, were upped as the USDA reduced its export estimates for the 2012/13 crop year that ends July 31, citing the recent pace of shipments. Cotton futures sank the most since early May following the report, with the benchmark December cotton contract on ICE Futures US closing down 2.05 cents, or 2.4 percent, at 84.74 cents a lb.
Adding fuel for the bears, the USDA upped its projections for record world inventories on increased output and falling global consumption. The USDA raised its expectations for global ending stocks in the new 2013/14 crop year to 94.34 million 480-lb bales from 92.49 million bales previously. US cotton
World stocks have been climbing largely because of a government stockpiling program in China. The world’s top textile market will hold over 60 percent of global stocks by the end of July 2014, as the USDA maintained its forecast for China’s carryover of 58.93 million bales.
“The balance sheet for China is unchanged this month and assumes continuation of current policies regulating the national reserve acquisition and release prices,” the USDA said. China has said it would continue its stockpiling program into the new crop year, though growing criticism that the policy inflates global prices and hurts the country’s textile mills has prompted traders to speculate a change may more imminent.
“Overall, it was a weaker report and shows a weaker cotton market,” said John Flanagan of Flanagan Trading Corp in North Carolina. Global inventories will continue to balloon in the 2013/14 crop year, with the expected world consumption at 109.79 million bales, down from a June forecast of 110.17 million bales. World production is forecast to total 118.02 million bales, upped from a previous projection of 117.16 million bales.
That includes a notable increase of 1 million bales to production of 28 million bales in India, the world’s second largest producer, due to favourable weather conditions. The US carryover by the end of 2013/14 will reach 2.9 million bales, revised higher from last month’s forecast of a three-year low of 2.6 million bales.
Those additional 300,000 bales arrive on the back of slower shipments at the tail-end of the current marketing season. US exports are estimated at 13.3 million bales this year, USDA said. Meanwhile, the USDA left unchanged its 2013/14 output forecast for the United States at 13.5 million bales to the “chagrin of many,” Sharon Johnson, a cotton specialist with KCG Futures in Atlanta, said in a market note.
Dealers have said the US crop may be delayed or damaged thanks to a severe drought in Texas, the top producing state, and plantings delays earlier in the season. The revised outlook for the United States may deflate price support for cotton futures, which climbed to a three-week high ahead of the report.
Concerns over available supplies heading into the new season on August 1 have pushed the nearby December ICE contract to a premium over March 2014. Expectations of tightening stocks had grown amid the largest July ICE delivery in at least five years, expected to cut exchange stocks currently at three-year highs by more than half. Courtesy Reuters
Published in ZaraiMedia.com