USDA's much anticipated new crop supply/demand report had plenty for traders to consider, but much of it already was factored into the market, analysts said.
"Actually, USDA's 2010-11 balance sheet looks a lot like this years, at least starting off," a market observer said.
USDA's 2010-11 U.S. cotton projections included higher supplies offset by higher exports relative to last season, resulting in marginally lower ending stocks. Based on the department's March 31 prospective plantings report, combined with a seven-percent abandonment rate and a yield of 815 pounds per harvested acre, USDA now projects U.S. cotton production at 16.7 million bales. The projected abandonment was reduced from the 10-year average of 11 percent due to unusually favorable soil moisture in Texas.
Domestic mill use was projected at 3.3 million bales, a marginal reduction from 2009-10 while U.S. exports were projected to rise 1.5 million bales from 2009-10 to 13.5 million as foreign demand is expected to outpace supply. U.S. ending stocks were pegged at 3.0 million bales, the lowest since 1995-96.
World cotton production was projected to rise nearly 11 million bales in 2010-11, but supplies now are expected to increase less than one percent from last season due to sharply lower beginning stocks. USDA estimates world production to rise in almost all cotton-producing countries with the United States, India, Brazil, and Pakistan accounting for about 70 percent of the increase. World consumption was projected to rise 2.8 percent supported by economic recovery while at the same time constrained by limited supplies.
An increase in China's imports to 11.5 million bales boosted world trade figures. With a slight increase in cotton production and declining stocks, China will need to rely on imports to sustain a projected three percent increase in consumption. Therefore, world ending stocks are expected to decline 2.6 million bales to 50.1 million. The resulting stocks-to-consumption ratio of 42 percent is the lowest since 1994-95.
Meanwhile, traders said this week's export sales report from USDA was an outstanding example of the continually improving global demand for cotton. In the week ended May 6, net sales of 2009-10 crop U.S. cotton totaled 261,600 bales. The figure was up 58 percent from the previous week and eight percent from the four-week average. China, Turkey, Taiwan, and Vietnam were the week's top buyers. Net sales of 116,100 bales for delivery in 2010-11 were primarily for Turkey, Peru, and Mexico.
At 259,500 bales, export shipments were up 17 percent from the previous week and two percent from the four-week average. Primary destinations were China, Turkey, and Mexico.
"At any other point in the season this would be considered a very strong export report," an analyst said. "But at this point of the marketing year, given what cotton is left available to offer, to call this an 'outstanding report' would be a significant understatement," he explained.