NOTE: The Bloomberg survey listed our US production at 20.1 Mb. This is incorrect, it is 20.67 Mb.
One method used to estimate cotton production in Pakistan is to keep track of arrivals, which is the term used for raw cotton being brought to gins. This years rate is 17% above year ago, and if one used only this method, the production would jump to 10.7 Mb. A word of caution however, as a period of dry weather likely boosted harvest more than normal. Estimates for this crop have been all over the board, from as low as 8.0 Mb to 10.7 Mb. USDA is at 9.15 Mb.
Good to robust demand has supported the market for the last 12 months, and continues. Sales are running 2.3 Mrb ahead of last year, and that year had a final of 14.587 Mrb. If one assumed this year will be exactly like year ago, then simply add 2.3 Mrb to 14.587 to get a sky-high target of 16.9 Mrb. An actual shipment number that high would place carryout at an extreme of 3.3 Mb, with a ratio of 16%. The ratio was 16.4% in 13/14 and price ranged from 97c/62c. Our thoughts on exports were such that when world crops caught up from low levels two years ago, US export demand would slow down. The puzzling aspect is that world crops have caught up, but demand remains much better than anticipated. This number will get more of our attention come Thursday.
The CRB, and King Crude, have each powered to the highest level since June 2015. The entire board took note today, and just about every market (except livestock) moved up. We have been in this business long enough to know not to buck the leaders, especially when markets tend to move together. There have been early inflation warnings, as seen by essentially full US employment and rising wage pressure. The balance sheets for cotton do not argue for big bull markets, unless one believes in theories of phantom stocks. But if those prove true, or partially true, then the story changes. We have no inside knowledge on missing stocks, but do see some pretty impressive bull markets that have much impact on cotton. Our focus is on hard balance sheet numbers, but one eye is watching those outsides.
Chart shows a 10 year plot of cotton vs the CRB. The all-time low was June 2008, when cotton traded a low of 63c. The all-time high is July 1998, with cotton at 83c. The surprising thing is that cotton is more or less at a neutral level against the CRB, when looking at price data since 1999. The ratio high since then has been 0.34 and the low near 0.09. In recent months the CRB, led by crude, has moved higher while cotton remained the flat. The ratio since May has thus dropped from 0.22 to 0.16. Historical low ratio level is around the 0.12 to 0.09 level.
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