While demand drivers are largely absent in corn and wheat, and export sales to date remain disappointing in beans, other markets seem to be experiencing a boom. US sorghum & cotton exports in particular suggests major changes to those balance sheets lie ahead, and unlike recent years certain markets absolutely require additional acres in 2018 to better balance supply & demand. China has returned to the US cotton market in bulk, with US commitments to China as of Dec 31st totaling 1.9 Mil Bales, up 40% from the same week a year ago. Total US cotton export rest at 11 Mil Bales, up 40% from last year and which already account for a rather large 75% of the USDA’s forecast. Either sales must slow very quickly, or the USDA must raise its export forecast in its Jan WASDE.
AgResource doubts cotton export sales will slow much in the weeks ahead, mostly due to Chinese interest. China has allowed its cotton stocks to be drawn down (following massive stocks building from 2011 to 2014), while demand growth there has been a steady 4% per year. Imports of 15 Mil+ bales per year are unlikely, but there has been evidence that China is slowing the decline of its cotton inventory through imports. Chinese cotton prices this week are quoted at $1.02/Lb., vs. US cash prices of $.75-.76/Lb., and the US’s discount in recent months has been inching wider. Pace analysis suggests US cotton exports in 17/18 will be closer to 16.5-16.8 Mil Bales, vs. the USDA’s projected 14.8 Mil. We also mention US cotton ginnings are up 14% from last year, while the USDA projects US domestic cotton use unchanged from last 2016/17. As such, US cotton end stocks look to fall below 4 Mil Bales, and 2017 will be yet another crop year without any meaningful boost in stocks.
ARC is unsure of how long or to what extent cotton prices rally. This is especially true in 2018, as like sorghum China’s appetite for US raw materials can ebb & flow. But the point is that more acreage in the Southern US this spring will be dedicated to cotton production, and so a mild battle for acreage between corn, soybeans and wheat looks to unfold there. The graphic at left charts the year-over-year change in cotton price on Jan 31st against the change in cotton acreage the following spring. Cotton futures today are up 6% from last year, and look to buy another 1 Mil acres in the Delta/Southeast; sorghum prices look to secure 0.5-1.0 Mil acres in the Southern Plains; spring wheat, barley & oats are vying for area in the N Plains, and for the first time in several years, land available for other major crop production will be reduced.