Cotton Experts announces that the following two weeks of anxious anticipation cotton traders were a bit stunned by the USDA August World Cotton Supply Demand Report released.
While USDA's estimates of foreign supply and demand were well expected, the estimated U.S. crop size was a real stunner.
While the industry had expected a significant drop in U.S. production from the July report, there was little change. Nevertheless, crop conditions continue to deteriorate weekly.
Cotton Experts was the first objective field survey of the crop this year and will be followed by monthly surveys through January. Yet, judging from New York's early reaction, the report was not a huge surprise to many traders.
However, I must be counted as one that was surprised. While I had no expectation that the survey would include an estimate of the pending, but not yet certified disaster in the Southwest, there was no doubt that United States Department of Agriculture (USDA) would lower its estimate from that of July.
The expanding drought in the Southwest and Midsouth will continue to take its toll. I continue to expect the U.S. crop to fall below 19.5 million bales, with the not so outlandish expectation that the crop will fall below 19 million bales, somewhat closer to 18.5 million bales.
The 57 cent area proved to hold far too much resistance to overcome for now. Nevertheless, that area will continue to be challenged.
While the market pulled back in early trading after the release of the USDA report, there continue to be signs of concern about the size of the U.S. crop. The price trend will remain higher.
The report confirmed the end of the marketing year flash that sent 2005-06 export to a record 17.6 million bales, some 550,000 bales above the July estimate.
That coupled with 2005-06 domestic consumption at 6.0 million bales, brought year ending carryover stocks down to 5.9 million bales.
While this is 400,000 bless more than the 2004-05 level of ending stocks, just six months ago the market was concerned that 2005-06 carryover would be 6.5 to 6.7 million bales.
Projecting 2006-07 U.S. exports at 16.2 million bales and domestic use at 5.5 million, USDA forecasts that July 31, 2007 carryover will drop to 4.7 million bales, a level that should allow New York to trade at the very low 60-cent level.
World production was raised 1.23 million bales and world carryover was increased 840,000 bales.
The primary production change was a one million bale increase in India, an increase expected by the market. There were only minor adjustments made for other countries.
The certificated stocks issue will continue as a massive sledge hammer looming over any attempt to take New York futures higher. However, as crop production estimates fall, as is expected, prices will continue to inch their way upward.
While USDA's estimates of foreign supply and demand were well expected, the estimated U.S. crop size was a real stunner.
While the industry had expected a significant drop in U.S. production from the July report, there was little change. Nevertheless, crop conditions continue to deteriorate weekly.
Cotton Experts was the first objective field survey of the crop this year and will be followed by monthly surveys through January. Yet, judging from New York's early reaction, the report was not a huge surprise to many traders.
However, I must be counted as one that was surprised. While I had no expectation that the survey would include an estimate of the pending, but not yet certified disaster in the Southwest, there was no doubt that United States Department of Agriculture (USDA) would lower its estimate from that of July.
The expanding drought in the Southwest and Midsouth will continue to take its toll. I continue to expect the U.S. crop to fall below 19.5 million bales, with the not so outlandish expectation that the crop will fall below 19 million bales, somewhat closer to 18.5 million bales.
The 57 cent area proved to hold far too much resistance to overcome for now. Nevertheless, that area will continue to be challenged.
While the market pulled back in early trading after the release of the USDA report, there continue to be signs of concern about the size of the U.S. crop. The price trend will remain higher.
The report confirmed the end of the marketing year flash that sent 2005-06 export to a record 17.6 million bales, some 550,000 bales above the July estimate.
That coupled with 2005-06 domestic consumption at 6.0 million bales, brought year ending carryover stocks down to 5.9 million bales.
While this is 400,000 bless more than the 2004-05 level of ending stocks, just six months ago the market was concerned that 2005-06 carryover would be 6.5 to 6.7 million bales.
Projecting 2006-07 U.S. exports at 16.2 million bales and domestic use at 5.5 million, USDA forecasts that July 31, 2007 carryover will drop to 4.7 million bales, a level that should allow New York to trade at the very low 60-cent level.
World production was raised 1.23 million bales and world carryover was increased 840,000 bales.
The primary production change was a one million bale increase in India, an increase expected by the market. There were only minor adjustments made for other countries.
The certificated stocks issue will continue as a massive sledge hammer looming over any attempt to take New York futures higher. However, as crop production estimates fall, as is expected, prices will continue to inch their way upward.
