The market had a muted reaction to USDA report, which is probably due to the fact that most of the changes had already been 'discounted'.
The US situation was perhaps a bit more bearish than anticipated, as the US crop was up by 640'000 bales to 21.3 mio bales and domestic mill use was lowered by another 100'000 bales to 5.2 mio bales.
US exports were increased from 16.0 to 16.2 mio bales 'due to the larger supply', which in our opinion offers no guarantee that the US will export that much cotton, especially since Chinese imports have been scaled back by a million bales.
US ending stocks increased from 5.4 to 6.0 mio bales and are now at the same level as they were at the beginning of the season, but they should rise further because exports are not likely to meet these overly optimistic expectations.
World numbers were slightly friendly on balance, as production increases in China, the US and West Africa of a combined 1.71 mio bales were more than offset by reductions in Pakistan, Australia, Greece, Syria, Turkey and Central Asia totaling 2.18 mio bales.
When we further back China out of the equation, the supply and demand situation is more or less in balance, with production outside the US and China at 64.42 mio bales and consumption at 65.68 mio bales. This deficit of just 1.26 mio bales compares to a similar shortfall of 1.05 mio bales last season and a surplus of 4.51 in 2004/05.
However, there are a couple of things that have changed recently, which may put prices on a firmer footing. First, we no longer have a Step-2 that keeps US prices competitive with foreign growths, which has pushed the US into the role of residual supplier.
marketing@alchempro.com
