NY futures edged up slightly this week, as December gained 75 points to close at 85.47 cents, while March advanced 72 points to close at 85.18 cents. After a string of dull, low volume sessions, the market finally showed some signs of life today following several news stories out of India and China.
In India heavy rain apparently inundated parts of Gujarat and Maharashtra yesterday, although there are differing views among traders regarding the impact on cotton, ranging from problematic to beneficial. Nevertheless, recent rains in the US, China and now India are reminding traders that these generally late crops are still exposed to potentially harmful weather over the coming weeks. At a China Cotton Association (CCA) meeting a number of speakers offered their opinion on China's supply/demand situation this week, and while estimates varied greatly, the common theme was that planted acreage is lower than estimated and that yields are likely going to disappoint due to a variety of adverse weather conditions during the growing season.
The Ministry of Agriculture came up with a crop estimate of just 29.0 million statistical bales, while the CCA was more optimistic at 31.8 million bales. However, both guesses are below the current USDA estimate of 33.0 million bales! Interesting too was that the CCA sees China's production gap this season at 7.2 million statistical bales (crop of 31.8 versus consumption of 39.0), whereas the USDA projects a shortfall of just 3.0 million bales (crop of 33.0 versus consumption of 36.0). We tend to agree with the CCA, as well as the US Ag attaché in Beijing, and feel that China's mill use has been underestimated by some 3-4 million bales. As previously explained, inventories outside the Reserve seem to be a lot tighter than the USDA numbers imply and this can only be explained by higher consumption. If our assumption were correct, it would be even more remarkable considering that China has been importing yarn and fabric at a torrid pace in recent months. In August, China imported a record 180'955 tons of cotton yarn, bringing the total for the first eight months of the calendar year to 1.18 million tons, or nearly 50% more than in 2012.
Another statistic from China that points to stronger mill use is the 2.94 million tons yarn production number, which includes all fibers. The cumulative figure for the first eight months of 2013 is over 8 percent ahead of last year at 22.6 million tons. Although there is no doubt that cotton continues to lose market share to man-made fibers, one nevertheless has to wonder whether cotton consumption has indeed dropped from 50.0 to just 36.0 million bales since 2006, while yarn output has doubled during that same period.
