2011-6-24

Up Again And Export Problems
Then, on June 2 came this report: "NY futures moved sharply higher this week, with July rallying 1321 points to close at 164.24 cents, while December gained 1266 points to close at 139.23 cents." And in West Texas the weather was still very dry. Plexus reported: "It is difficult to estimate where exactly the US crop stands today, because there is still time to rectify some of the problems, but unless we see an immediate improvement we are afraid that the US crop won't yield much more than 16.5 million bales."

This projection of a smaller US crop would certainly cause some export problems, Plexus noted. "The US has already committed around 5.8 million statistical bales for export next season, which compares to just 1.4 million bales of forward sales of the previous year. Combined with the 3.8 million bales in domestic mill use, the total number of bales owed is therefore approaching the ten million mark or roughly 60% of potential production. This means that shippers will be forced to step on the breaks in regards to additional sales ....

"However, judging from past experience, other cotton-growing countries are not quite able to jump on the bandwagon in a very short time. They simply don't have the same logistics capabilities as the United States, which is able to export some 400,000 to 500,000 bales weekly. Therefore, Plexus warned, buyers who still have to fill third and fourth quarter commitments should not wait too long to place orders.

Food Is The Major Competitor
Based on the June 2 numbers, Plexus noted that many cotton traders still believe prices will fall back to a longer-term average. This could be, but food crops offer strong competition: Growers get US$7 for a bushel of corn and US$14 for soybeans. It seems to be a tough job for cotton to remain competitive. As Plexus noted: "As long as food prices remain high, cotton will have to be attractively priced as well. A growing world population and rising protein consumption combined with the fact that more food is being used to produce energy and to feed livestock should all but guarantee that corn and soybean prices will remain at elevated levels for years to come."