USDA catches cotton market by surprise with big drop in forecast

USDA catches cotton market by surprise with big drop in forecast

“I didn’t see anything surprising in the report,” said Dr. O.A. Cleveland, professor emeritus with Mississippi State University and a member of the marketing panel for the Ag Market Network. “The only thing that surprised me was that USDA bit the bullet and went ahead and made these changes. It was unprecedented with respect to going back and changing planted acres.”

“What a report.” That’s the way Jarral Neeper, president of Calcot, described the cotton portion of USDA’s August Crop Production Report during the Ag Market Network’s monthly teleconference this morning (Aug. 13).

“That’s one of the few times in recent memory when USDA has come out with such a bullish report,” said Neeper, a member of the panel of marketing experts who participate in the Ag Market Network’s monthly event.

In its first survey of growers for the 2015 season, USDA forecast a U.S. crop of 13.1 million bales. That was down 20 percent from the 2014 crop and significantly lower than the 14.5 million bales USDA had been using in its earlier estimates for the 2015 crop. (The latter was based on trend-line yields and the USDA June Acreage Report projected plantings of 9 million acres.)

“Not only is the 13.1 million bales below the earlier USDA estimate of 14.5, but it compares with a pre-report survey of analysts that showed an average guess of somewhere around 14.8 million bales,” said Neeper. “Without a doubt the biggest surprise was the Texas crop at 5.3 million bales.”

Most pre-report guesses and other public estimates were in the 6.3- to 7-million-bale range for Texas, he said. “Certainly, the 7 million bales was at the upper end of expectations, but that seemed a reasonable estimate. Of course, the higher number was based on a very small amount of abandoned acres and, undoubtedly a better yield estimate.”

USDA took “a very liberal approach” to the abandoned acres in Texas, said Neeper. “They knocked 900,000 acres off the revised planting estimate of 5.1 million acres. They were carrying 5.3 million acres, but, after the June estimate they said they needed to re-survey Texas so they could make sure they were capturing the most up-to-date information.”

High abandonment on High Plains

A total of 500,000 acres of the 900,000 listed as being abandoned were located in the Southern High Plains region and 80,000 in the Northern High Plains. Thus, about 600,000 of those acres came out of the Texas High Plains. The remaining 300,000 acres or so were scattered across the remainder of the state.

“That so many acres were listed as potentially abandoned took most people by surprise with the primary argument being ‘well, look at all the rain they got,’” said Neeper. “I guess too much is really too much.”

The Memphis-East Territory crop came in at an estimated 6.45 million acres, which Neeper says was at the upper end of expectations. In the Far West, including Pima, the estimate came in at 937,000 bales, a little higher than expected.

For the 2014 crop year, which ended July 31, USDA raised the export estimate by 200,000 bales and increased the unaccounted for disappearance of cotton by 200,000 bales. The Department also lowered 2013 ending stocks by 100,000 bales with the same increase in unaccounted for disappearance.

“When you put it all together that meant that ending stocks for 2014 were reduced by 500,000 bales,” said Neeper. “So we entered the 2015 crop year with a 3.7-million-bale carryover and a crop of 13.1 million bales for a total supply of 16.8 million.”

The smaller supply led USDA to reduce the export forecast for 2015 by 800,000 to 10 million bales. “With an estimated domestic consumption of 3.75 million bales that will leave a carryover of only 3.1 million bales going into the 2016 crop year.”

World stocks-to-use ratio falls to 50 percent

On the world stage, USDA reduced its production estimate by 2.5 million bales with 1.4 million of those coming from the U.S. and 1 million coming from China. “The Indian crop was reduced by 500,000, and, again, that could be reduced even further, depending on El Nino,” said Neeper.

World cotton consumption was almost left unchanged at 114.6 million bales. “A big decrease in production and a small increase in consumption led USDA to reduce world ending stocks by 3 million bales.”

World ending stocks for 2015 were put at 105.2 million bales. Chinese ending stocks were estimated at 64.6 million. “That leaves 40.6 million bales in the rest of the world, down 3.2 million bales from a year ago,” said Neeper. “It puts the stocks-to-use ratio at 50 percent for all countries outside of China. This is the lowest level since 2009.

“We’re all in a state of shock over these numbers, and I think eventually the Texas number will creep back up toward 6 million bales and maybe even a little higher,” he noted. “In the meantime, there has to be a lot of nervousness out there.”

Other members of the panel, which consists of O.A. Cleveland, professor emeritus at Mississippi State University; H.W. “Kip” Butts, senior cotton analyst, Informa Economics, John Robinson, professor and Extension specialist/cotton marketing; Neeper; and Pat McClatchy, executive director of the Ag Market Network, were divided on the report.

Dr. Robinson said he was surprised by the report. “What I have a hard time accepting is what is USDA seeing out there or hearing to declare such a large chunk of acres as being abandoned. I’ve heard a lot of talk about cotton not blooming, but I’ve heard nothing about crop insurance assessors zeroing out land.”

Yield average too low?

Butts questioned USDA’s 606-pound yield average projection, which he said compared to the last several years would be “an extremely low yield.”

But Dr. Cleveland, who has developed a reputation for being one of the strongest bulls on cotton prices, said USDA’s adjustments were overdue.

“I didn’t see anything surprising in the report,” he said. “The only thing that surprised me was that USDA bit the bullet and went ahead and made these changes. It was unprecedented with respect to going back and changing planted acres.”

Dr. Cleveland said many observers might question the scope of the changes but compared it to the “situation we have with growers sometimes when they get too comfortable and start looking at the crop from the windshield of their truck rather than getting out in the field.

“I know, in the Mid-South, the crop started going backwards a day or two or three before July 1,” he said. “The crop spent a month or longer in some places without any moisture. It’s excellent cotton land, but it doesn’t have any water on it, and the crop is all but gone.”

He said he’s talked to growers in Texas who aren’t happy with the state of their crop, particularly in areas that received heavy rains earlier in the year.

To hear a recording of the discussion, go to www.agmarketnetwork.net

TAGS: Outlook
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