Moreover, the average annual change gets smaller in more recent time periods (7% since 1990, and 5% since the 1998 drought). Still, there is some historical precedent for major reductions in Texas plantings, with the two largest examples being 1989 (a 17% drop from the previous year) and the 1996/97 crops which represent a combined 15% drop from the 6.4 million planted acres in 1995.
Combined with other assumptions, this still results in lower ending stocks of 5.56 million bales and a 2007/08 ending stocks-to-use ratio of 25.3%. Comparing the latter to prior U.S. stocks-to-use figures (e.g., 26% in 2004/05, 25% in 2005/05, and 43% in 2006/07), I would expect 2007/08 New York futures to be from the lower 50's to mid 60 cents range. A major driver of this conclusion is the assumption of 17 million bales of exports in 2007/08.
USDA is currently forecasting new crop U.S. exports of 18 million bales. The arguments for USDA's view are 1) 18 million bales lies within the upward pointing five year trend projection, and 2) projected foreign stocks-to-use ratios are relatively low.
In terms of the World new crop supply/demand picture, I think that a likely decrease in 2007/08 below 40% suggests that the A-Index could rise enough to significantly erode loan deficiency payments. The underlying forecast for this was supported by the February report of the International Cotton Advisory Commission which forecasted an expected decline of 2007/08 world ending stocks to 49 million bales, based on expected stable production and greater demand.
marketing@alchempro.com
