There is another big boy on the cotton block now...India. This unprecedented change in the U.S. supply demand balance sheet was brought about due to the Indian factor that has been addressed several times this past year.
That is, the rapid increase in Indian yields has brought about rapid growth in Indian production and has allowed that country to grab the position as the world's second largest producer, but more importantly, it has made a significant move to become the primary supplier of export supplies to China.
While the U.S. continues to remain the primary supplier of raw cotton to China, and will for the foreseeable future, India has positioned itself to export more than one million bales of cotton to China this year with prospects to export as much as 1.5 million bales. Assuming, a neutral to friendly growing season in 2008 then Indian exports to China will further increase at the expense of U.S. exports.
The 2007 production for India was left unchanged at 23.5 million bales. However, Indian domestic usage was cut 950,000 bales, while exports were increased 1.4 million bales, mainly due to recent sales to China.
Chinese exports were lowered 500,000 bales; recall the 500,000 bale reduction in U.S. exports. With China usage remaining at 55 million bales, Chinese ending stocks were therefore raised 500,000 bales, up to 17.66 million bales.
As had been rumored by Pakistan's recent entry in the export market, USDA'sreduced their crop 1.25 million bales while increasing the estimate for Pakistani imports by 1.3 million bales.
World ending stocks were lowered 200,000 bales and now stand at 54.8 million bales. World consumption was lowered 250,000 bales and world production was lowered 900,000 bales, but beginning stocks were increased 500,000 bales.
Despite increasing stocks in China and the U.S. the decline in world stocks will help boost prices higher. However, with stocks climbing in these two countries, the jump to higher prices will be subdued. The old crop contract months will challenge 70 cents, but the real price increase awaits the 2008 crop.
marketing@alchempro.com
