Cotton Incorporated economist Jon Devine reports cotton prices have been testing levels below 70-cents a pound after touching levels above the 72-cent mark last week….
“The possible reason that prices got a boost last week, was that Chinese prices were on a run. Since September Chinese have increase by about 10%. The reason that Chinese prices may have been moving higher. The auction process that began back in May is now drawing to a close. Since the onset in early May, more than 10 million bales have been sold out of the government reserve system, and that’s a lot of cotton, but Chinese mills use more than anyone else, and they need a lot of cotton.
With reserve sales ending with the month of September, those mills are likely taking a much closer look at the harvest. Reforms to the Chinese subsidy system has to led to some serious reductions to Chinese acreage, and their crop is expected to be down by about 40% relative to where it was four or five years ago. In addition, about 75% of the Chinese harvest is now produced in the extreme western part of the country, while the majority of the Chinese spinning industry is located in the eastern part of the country.”
Devine says reports indicate the cotton production outlook is pretty good globally…
“Last year the primary country of concern was Pakistan, where there were issues related to the white fly, and leaf curl virus. This year looks like they have a better handle on things, and yields are expected to rebound back to average levels. Last year, India had an off year for yields last year, but this year, it looks like yields could also be decent.
Australia, where acreage has been constrained by water scarcity, is expected to increase their harvest this season by 50%. Likewise, West Africa has had a good year for rainfall, and therefore for production. And they are expected to have a strongly higher crop.
Many of these countries are exporters and as that cotton starts to hit the market in the next several months, and create some serious competition for our crop. How well we’re able to move those extra three million bales we’re expected to grow this season should shape price direction as we get deeper into the season.”
That’s Cotton Incorporated economist Jon Devine.