Monthly Economic Letter

Transcription

1 Monthly Economic Letter Cotton Market Fundamentals & Price Outlook RECENT PRICE MOVEMENT Benchmark prices either increased or were stable over the past month. Prices for the May NY futures contract increased, climbing from levels near 75 in mid-march to those near 79 recently. The July contract, which now represents more open interest, also rose and has maintained values slightly higher than those for the May contract. The A Index climbed from values near 82 near the middle of last month to those near 88 most recently. Chinese cotton prices represented by the CC Index (3128B) were comparatively stable in both international and domestic terms, holding to values near 105 and 15,600 RMB/ton. Indian spot prices (Shankar-6 quality) increased in both international (from 77 to 85 ) and domestic terms (from 42,500 to 46,200 INR/candy). Pakistani spot prices were steady at values close to 75 or 8,700 PKR/maund. SUPPLY, DEMAND, & TRADE This month s USDA report included only marginal changes to global production, consumption, and trade estimates. The world production number increased just 45,000 bales, leaving last month s estimate essentially unchanged at million. The world mill-use figure was lowered 412,000 bales to million. Along with a slight reduction to 2018/19 beginning stocks, the net effect was a 359,000 bale increase to the forecast for global ending stocks (to 76.4 million). The only notable country-level revisions for production were for China (+250,000, to 27.8 million) and Burkina Faso (-200,000, to 1.0 million). For mill-use, the largest changes included those for Turkey (- 300,000, to 6.5 million), the U.S. (-,000, to 3.1 million), and Vietnam (-,000, to 7.2 million). The global forecast for trade was essentially unchanged (-87,000 bales, to 42.1 million), but there were a series of significant country-level updates. In terms of imports, the largest adjustments were for China (+500,000 bales, to 8.0 million), India (-200,000, to 1.4 million), Turkey (-200,000, to 3.0 million), and Vietnam (-,000, to 7.3 million). In terms of exports, the largest adjustments were for Australia (+200,000, to 3.8 million), Turkey (+,000, to 0.5 million), India (-300,000, to 4.2 million), and Burkina Faso (-150,000, to 1.1 million). PRICE OUTLOOK As planting has begun in many northern hemisphere producing countries, attention has shifted ahead to the upcoming crop year. Next month, the USDA will issue their first comprehensive set of supply, demand, and trade estimates for 2019/20. These projections will inform baseline expectations, but will have to be based on important NY Futures and A Index Increase, Chinese Prices Stable CC Index () A Index NY Nearby Recent Price Data Latest Value (Apr 9) Latest Month (Mar) APRIL 2019 Last 12 Months (Apr18-Mar19) NY Nearby A Index CC Index Indian Spot Pakistani Spot Additional price data available here. Price definitions available here. World Balance Sheet Beg. Stocks Production Mill-Use Ending Stocks Stocks/Use 66.0% 61.6% 62.1% China Balance Sheet Beg. Stocks Production Imports Mill-Use Exports Ending Stocks Stocks/Use 92.4% 79.6% 81.5% World-Less-China Balance Sheet Beg. Stocks Production Imports from China Mill-Use Exports to China Ending Stocks Stocks/Use 49.2% 48.3% 47.8% Additional balance sheet data available here.

2 assumptions regarding macroeconomic conditions, the trade environment, and the weather. For cotton prices, a key variable in recent years has been the allocation of stocks inside and outside of China. As has also been the case in recent crop years, there has been considerable uncertainty when attempting to predict those allocations. On the Chinese side of the equation, uncertainty stems from reserve stocks and imports. In each of the past three crop years, the Chinese government has conducted auctions of reserve supplies in the spring and summer. In each of the past two years, those sales began in March. This year, sales have not begun, and there has been no official statement as to whether or not sales will eventually occur. Inspections of warehoused reserves have been reported. This has been interpreted as preparation for an impending round of auctions, but no announcement has been made. Chinese officials suggested last fall that reserves could be near a minimum target level. Correspondingly, the further drawdown of reserves that would result from another round of auctions could prompt the Chinese government to purchase imports to replenish its supplies. Imports could also increase with the release of additional quota allowing Chinese mills to access the international market directly. Regardless of whether it is the Chinese government or Chinese mills doing the importing, the central question is if Chinese stocks nationally (private and governmental) have reached a level where they can be expected to stabilize or if they will be allowed to decrease further. Stabilization of Chinese stocks requires China to import a volume equal to its production deficit. The USDA s current estimates put China s production deficit in 2018/19 at 13 million bales. If the deficit is maintained in 2019/20 and China decides to stabilize stocks, Chinese imports will need to increase five million bales (current USDA forecast for Chinese imports in 2018/19 is 8.0 million bales). With respect to the allocation of stocks inside and outside of China, a dominant variable for the collective world-outside-china has been the weather. While also a factor in India, this has been especially true for the U.S., where drought and hurricanes wiped out several million bales of production in 2018/19. With U.S. acreage predicted to be stable, a return to neutral/beneficial growing conditions in 2019/20 would result in a very large U.S. crop (USDA forecast in February was 22.5 million bales, current 2018/19 estimate is 18.4 million). The potential increase in production from the U.S. alone suggests that it will not be difficult for China to find the imports it would need to stabilize stocks. However, India, and most other cotton exporters are also projected to grow more cotton next crop year. For prices, this exposes a vulnerability. If the weather is good and if China does not significantly increase imports, the world-outside-china could face a significant increase in stocks. If that proves the case, prices globally could face downward pressure. World Cotton Production China India United States Brazil Pakistan Rest of World World World Cotton Mill-Use China India Pakistan Bangladesh Vietnam Rest of World World World Cotton Exports United States Brazil India Australia Benin Rest of World World World Cotton Imports Bangladesh China Vietnam Indonesia Pakistan Rest of World World World Cotton Ending Stocks China India Brazil United States Pakistan Rest of World World Additional supply and demand data available here. Please forward comments and questions to marketinformation@cottoninc.com To subscribe to the Monthly Economic Letter click here and follow the instructions in the Subscriptions box on the left side of the page. Sources: Price data from Reuters, Cotlook, Cotton Assn. of India, and Karachi Cotton Assn. Supply, demand, and trade data from the USDA. Disclaimer: The information contained herein is derived from public and private subscriber news sources believed to be reliable; however, Cotton Incorporated cannot guarantee its accuracy or completeness. No responsibility is assumed for the use of this information and no express or implied warranties or guarantees are made. The information contained herein should not be relied upon for the purpose of making investment decisions. This communication is not intended to forecast or predict future prices or events Cotton Incorporated. All rights reserved; America's Cotton Producers and Importers

3 Charts - Daily Charts - Mont Tables List of Charts and Tables A Index & NY Nearby Chinese Prices Indian Prices Pakistani Prices A Index & NY Nearby Chinese Prices Indian Prices Pakistani Prices Balance Sheets (bales) Balance Sheets (tons) Supply & Demand (bales) Supply & Demand (tons) One Year of Daily A Index and NY Nearby Prices 110 A Index NY Nearby One Year of Daily CC Index (Grade 328) Prices 125 local terms (RMB/ton) 17, RMB/ton 17, ,750 16, , ,250 14, ,250 13,750 Note: Differences in price movement in local and international terms () due to changes in exchange rates.

4 One Year of Daily Indian Spot Prices (Shankar-6 Variety) local terms (INR/candy, candy= kg) 50,000 45, , ,000 INR/candy 60 30, ,000 One Year of Daily Pakistani Spot Prices local terms (PKR/maund, maund = kg) 10,000 9, , ,000 PKR/maund 60 Note: Movement in prices in and local terms will not be identical due to changes in exchange rates. 6, ,000 Note: Differences in price movement in local and international terms () due to changes in exchange rates.

5 Three Years of Monthly A Index and NY Nearby Prices A Index NY Nearby Three Years of Monthly CC Index (Grade 328) Prices local terms (RMB/ton) 20,500 RMB/ton 19, , , ,500 13,000 11, , ,500 Note: Differences in price movement in local and international terms () due to changes in exchange rates.

6 Three Years of Monthly Indian Spot Prices (Shankar-6 Variety) local terms (INR/candy, candy= kg) 50,000 45, , , ,000 INR/candy 50 25,000 Three Years of Monthly Pakistani Spot Prices local terms (PKR/maund, maund = kg) 9,000 8, , , ,000 PKR/maund 50 4,000 Note: Differences in price movement in local and international terms () due to changes in exchange rates.

7 World Balance Sheet Beginning Stocks Production Supply Mill-Use Ending Stocks Stocks/Use Ratio 95.2% 79.8% 69.2% 66.0% 61.6% 62.1% China Balance Sheet Beginning Stocks Production Imports Supply Mill-Use Exports Demand Ending Stocks Stocks/Use Ratio 192.1% 156.9% 119.1% 92.4% 79.6% 81.5% World-Less-China Balance Sheet Beginning Stocks Production Imports from China Supply Mill-Use Exports to China Demand Ending Stocks Stocks/Use Ratio 47.0% 41.2% 41.7% 49.2% 48.3% 47.8%

8 India Balance Sheet Beginning Stocks Production Imports Supply Mill-Use Exports Demand Ending Stocks Stocks/Use Ratio 36.9% 23.1% 27.3% 31.5% 29.1% 29.7% U.S. Balance Sheet Beginning Stocks Production Imports Supply Mill-Use Exports Demand Ending Stocks Stocks/Use Ratio 24.6% 30.2% 15.1% 22.5% 23.6% 24.3% Pakistan Balance Sheet Beginning Stocks Production Imports Supply Mill-Use Exports Demand Ending Stocks Stocks/Use Ratio 26.0% 24.8% 22.2% 25.8% 25.9% 25.9%

9 World Cotton Production China India United States Brazil Pakistan Turkey Uzbekistan Australia Mexico Greece Mali Benin Burkina Rest of World African Franc Zone EU World World Cotton Exports United States Brazil India Australia Benin Mali Greece Burkina Uzbekistan Cote d'ivoire Mexico Cameroon Argentina Rest of World African Franc Zone EU World

10 World Cotton Mill-Use China India Pakistan Bangladesh Vietnam Turkey Brazil Indonesia United States Uzbekistan Mexico Thailand South Korea Rest of World African Franc Zone EU World World Cotton Imports Bangladesh China Vietnam Indonesia Pakistan Turkey India Thailand Mexico South Korea Malaysia Taiwan Egypt Rest of World African Franc Zone EU World Total

11 World Balance Sheet Beginning Stocks Production Supply Mill-Use Ending Stocks Stocks/Use Ratio 95.2% 79.8% 69.2% 66.0% 61.6% 62.1% China Balance Sheet Beginning Stocks Production Imports Supply Mill-Use Exports Demand Ending Stocks Stocks/Use Ratio 192.1% 156.9% 119.1% 92.4% 79.6% 81.5% World-Less-China Balance Sheet Beginning Stocks Production Imports from China Supply Mill-Use Exports to China Demand Ending Stocks Stocks/Use Ratio 47.0% 41.2% 41.7% 49.2% 48.3% 47.8%

12 India Balance Sheet Beginning Stocks Production Imports Supply Mill-Use Exports Demand Ending Stocks Stocks/Use Ratio 36.9% 23.1% 27.3% 31.5% 29.1% 29.7% U.S. Balance Sheet Beginning Stocks Production Imports Supply Mill-Use Exports Demand Ending Stocks Stocks/Use Ratio 24.6% 30.2% 15.1% 22.5% 23.6% 24.3% Pakistan Balance Sheet Beginning Stocks Production Imports Supply Mill-Use Exports Demand Ending Stocks Stocks/Use Ratio 26.0% 24.8% 22.2% 25.8% 25.9% 25.9%

13 World Cotton Production China India United States Brazil Pakistan Turkey Uzbekistan Australia Mexico Greece Mali Benin Burkina Rest of World African Franc Zone EU World World Cotton Exports United States Brazil India Australia Benin Mali Greece Burkina Uzbekistan Cote d'ivoire Mexico Cameroon Argentina Rest of World African Franc Zone EU World

14 World Cotton Consumption China India Pakistan Bangladesh Vietnam Turkey Brazil Indonesia United States Uzbekistan Mexico Thailand South Korea Rest of World African Franc Zone EU World Total World Cotton Imports Bangladesh China Vietnam Indonesia Pakistan Turkey India Thailand Mexico South Korea Malaysia Taiwan Egypt Rest of World African Franc Zone EU World Total