A Day Behind
Yesterday's letter ran with week old exports and sales, sorry about that. Data does need to be timely. This week's sales appear poor, but given that the US is still selling cotton at 90c, this number was good. China was high at 53 krb, and Viet 2nd at 27. New crop sales were 2. Shipments of 324 krb were very good, with the target avg now at a flat 300. Assuming a huge role of 2.5 Mrb, the US must sell 155/week. A role of 1/2 Mrb would require only 70/week. Combined sales of 136 krb were tied for lowest in 18 weeks.
The Outlook Forum new crop balance sheet was bullish on its face, with a 3.8 Mb carryout and a ratio of 21%. There is a very close comparison year nearby, that being the 17/18 year. That year featured a carryout of 4.2 Mb, a ratio of 21.6%, and a high/low of 9650/6725. The high that year occurred in the 11th month, as that year's ratio and that of the new crop were both pushing toward the low 20s in June and July. The normal inverse relationship with the $ in that market year was not good, and the $ traded from 9450/8850, and was near the upper edges late in cotton's market year. The $ today is slightly lower than where it traded in 17/18.
A long term trend in cotton usage is on page 9 of OF, showing cotton's share of textile imports falling from 45% to 40% since 2014. An observation of the world balance sheet, page 15, is that the numbers don't match up when doing simple math. Begin stocks for 20/21 and 21/22 area about 8 Mb below the USDA Feb report, but end stocks are calculated, somehow, to be reflective of the higher level.
Another observation is that world use for 21/22 at 122 Mb ties 06/07, 07/08, and 17/18 for all-time best. This usage fits nicely with the broad view of a huge consumer boom this year.
Assuming the Outlook Forum is correct on its new crop balance sheet, cotton would appear to be an upper 90s high, to a mid 70s low, the rest of the year. Highs usually come in spring, and March seems to be a month with plenty of highs. With spot now at 90c, it would seem to be an easy path to reach a high in the next 6 weeks. A 3.8 Mb carryout requires hard rationing plus a price that attracts acres. 90c does both. One piece of the OF balance sheet is that the US ratio of exports vs total supply is 71%. That would tie the all-time record in 16/17. Much depends on where the $ goes, and whether TX gets enough rain to plant.
The spot Mar has reached the trend line from the Sep 2011 and June 2018 highs, at 8936. Two long term timing events are due in mid Mar, and last year's major low occurred in late Mar to 2 Apr. Of interest is that copper has broken out to a 10 year high, while the A$ and C$ are at 3 years highs.