When we look at the current statistical position of the US, we started the new season with 9.7 mio bales according to the USDA, of which 4.9 mio bales have already been committed for export.
We estimate that at least 1.3 mio bales of old crop cotton need to be reserved for domestic mills before new crop arrives, which would leave only around 3.5 mio bales for sale, of which 1.2 mio bales are still in the loan and 0.7 mio bales are in the certificated stock.
This means that there are not a lot of unsold old crop stocks floating around in the marketplace, particularly when it comes to desirable qualities. The availability of old crop stocks may actually be even lower, since there is a considerable discrepancy of nearly 1.0 mio statistical bales between the ending stocks number of the USDA and that of the Census Bureau.
While remaining old crop supplies are moving quickly into the marketplace because of their attractive price, new crop is an entirely different story. The way things are shaping up, most new crop cotton will probably move into the government loan and we may have a repeat of the rather tedious AWP redemption game we have grown accustomed to over the last couple of seasons.
With equity demands by growers at around 400-500 points, it may take an AWP/Dec futures spread of around 1100-1200 points before new crop becomes viable. At the moment this calculation is still hypothetical, since there is not much new crop available yet.
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