Author: Michael Ferrari, PhD
VP, Applied Technology & Research

 

The April World Agricultural Supply and Demand Estimate Report (WASDE) was issued a couple of weeks ago, and it underscores the concerns that we have around the US cotton crop, which were highlighted in our post from earlier this week.  The table below from the April WASDE shows the USDA projections for the US cotton supply scenario

 

for the 2010/11 marketing year which runs from August to July.  In spite of favorable production estimates, in part due to a significant increase in acres devoted to cotton, the concerning statistic is around the projected ending stocks.  Even with a strong production outlook, this is not keeping pace with demand from the export side, and the result is a very thin margin as it relates to stockpiles.  Projected ending stocks for 2010/11 are now estimated at 1.6 mm (480 #) bales, compared to 2.95 and 6.34 for the previous two marketing years.  The result is an average price which has nearly doubled in two years, and any weather disruptions going forward will add significantly to the upside price risk – the current chart from one of the widely traded cotton ETFs (BAL) is shown in the stockcharts graphic below.