Recent Price Movement
December futures have been able to hold onto the gains made with last week’s surge.
Current values near 67 cents/lb are at the high end of the 63-68 cent range that they have traded in since early in the spring.
Throughout the month of July, as prices were falling from the high end of the range near 68 cents to the low end of the range to 63 cents/lb, there were widespread reports that demand was sluggish.
When we take a look at the recent uptick in prices, we can see that it was mostly a result of supply-related concerns.
Whether or not these higher levels can be maintained into the future can be expected to be a function of where demand is.
After all, if mills are not willing to pay the values being offered, prices will eventually decrease, regardless if the crop ends up being smaller than was previously estimated.
If mills were not excited about paying 63 cents/lb last month, it could be tough to get them to bite at 68 cents.
U.S. Cotton Spinning Increasing
Since we just made the transition to a new crop year, it could be a good time to examine demand for U.S. cotton and discuss how it has been evolving.
Even thought about 70% of the crop was exported, the largest single customer of U.S. cotton in 2014/15 were U.S. mills.
After declines throughout the past decade, the U.S. spinning industry stabilized in the late 2000s.
Over the past several years, there have been a string of investments in the U.S. spinning sector, including expansions at mills owned by U.S., Canadian, and Latin American companies.
Multiple new mills are being built by Indian investors, and a new Chinese owned mill has already come on-line in North Carolina.
With these investments, domestic mill-use is expected to increase 150,000 bales in the new crop year, and could add a couple thousand bales of consumption over the next several seasons.
Re-Shuffling of the Export Rankings
With the pullback by China, global cotton imports declined in a substantial way in the 2013 crop year. In 2014, those declines were maintained.
As the world’s largest exporter, U.S. shipments were affected.
In each of the past two crop years, U.S. exports to China were between two and two and a half million bales.
When China was supporting prices through its reserve program, U.S. shipments to China were over five million bales.
Due to the magnitude of the pullback from China in recent years, total U.S. exports have held to the lowest volumes since China began to open itself up to the global economy.
Shipments to other traditional customers of U.S. cotton have also been under pressure. Sales to both Turkey and Mexico, which have been the second and third largest destinations, were off 15-20% last crop year.
These losses were offset by gains in other markets. After rocketing 70% higher year-over-year, Vietnam emerged as the second largest customer of U.S. cotton in the 2014 season. If the increase last crop year is repeated, it is possible that Vietnam could become the most important importer in 2015.
Another growing market is Indonesia. Last crop year, Indonesia was the third largest buyer of U.S. exports.