Recent Price Movement
After dropping with external markets a couple weeks ago, cotton prices have been stable at values between 62 and 64 cents/lb.
This month’s USDA report will be released on Friday.
With the large revisions that were made last month, there are questions about abandonment, yield, and export forecasts and their implications for the carryout figure.
Any significant updates can be expected to have some impact on prices, but it likely would take some major changes to shake prices out of their recent range between 61 and 68 cents/lb.
Most of the questions regarding the national crop originate from Texas.
In Texas, 85% of the crop is rated in fair to excellent condition, but conditions are reported to spotty.
In Georgia, the second largest cotton state, more than 90% of acres are reported to be fair to excellent.
Nearly all of the cotton belt has bolls set and about a third of planted acres have bolls.
This is slightly behind average, and indications are still that this year’s harvest will be a few weeks later than normal.
Early harvesting in South Texas is underway, with the USDA reporting that a little over a hundred thousand bales have already made it through the classing process.
International Crop Outlook
Internationally, a current source of concern from a supply standpoint are the dry conditions in some of the most important cotton growing areas of India.
India is dependent on the summer monsoon to bring 80-90% of annual rainfall.
El Nino is associated with drier than average monsoons in India, and even though rains have been on and off throughout the summer, it appears that this year’s El Nino will not be an exception and that India will end up with lower than average precipitation this season.
In September, the monsoon tends to dissipate and currently this year’s monsoon is about 15% behind the average.
Cotton is drought resistant crop, but some effect on yield in the world’s largest cotton producing country could be expected.
Challenging Demand Outlook
On the demand side, the question of where growth may come from remains.
Expectations this spring, when the USDA released their early estimates for the new crop year, were that global economic growth would pick up.
Renewed concerns about Chinese economic growth, which supports growth in other economies, makes that early view appear optimistic.
Global mill-use is highly correlated to global economic growth, so there may be reason to expect slower growth this crop year.
In addition to macroeconomic factors, certain policy related issues remain in China, where government policies continue to maintain a significant premium for cotton relative to polyester.