Despite the US Department of Agriculture's sizeable cuts in nearly all cotton categories last month, analysts said, its estimates in the November supply/demand report will likely show the trimming continues as the full impact of global economic slowing is revealed.
USDA will release its November supply/demand estimates for the 2008/09 crop year on Monday at 0830 EST (1300 GMT). In October, analysts said, USDA finally acknowledged the global slowdown when its adjustments favoured cotton market bears in nearly every category. USDA chopped its forecasts for the US cotton crop, lowered US cotton exports, increased US and world ending stocks, boosted world production and lowered world consumption.
In addition, USDA cut demand from China, the world's largest cotton consumer, yet lifted its production and lowered its anticipated imports. Despite USDA's downsized outlook, Mike Stevens, analyst with SFS Futures/Swiss Financial Services in Louisiana, pointed out that the worst may be yet to come. "It could very well be December or January before the full brunt of the recession is seen statistically," he said.
He acknowledged that his own US consumption projection of an unchanged 4.4 million (480-lb) running bales for the November report is probably too large, adding that USDA often eases gradually towards their ultimate target. "With that trend inevitable," he said, "I think traders should be prepared for the kind of reduction in demand that will flow directly through to the world ending stocks."
Stevens said he looks for a 280,000-bale increase in US ending stocks to 6.48 million bales. He added that even a small shift away from cotton and into synthetic fabrics in China would have a dramatic impact on US exports, which he forecasts will decline by 200,000, to 12.8 million bales, in the November report.
John Flanagan, broker with Flanagan Trading Corp in North Carolina, also said he looks for pared down figures on Monday. "For cotton we expect them to lower the US crop to 13.5 million bales from 13.71 million (in October)," he said. Flanagan also sees consumption unchanged at 4.4 million bales and puts November exports 500,000 bales lower than USDA's at 12.5 million bales.
He said he thinks the cut to exports will boost ending stocks to an even larger 6.5-million-bale estimate. Looking globally, Sharon Johnson, senior cotton analyst at First Capitol Group in Atlanta, said she lifted her outlook for China's production to match USDA's 36.5 million bales, but added a cautionary note.
She pointed out that the forecast implies a new record yield that may be hard to achieve given weather patterns this year that were worse than in 2007. In India, Johnson said, local and international sources suggest an unchanged to slightly better crop, but she left her own estimate at 24.5 million, slightly below USDA's 25 million.
"A lot can change during the completion of the growing and harvesting seasons," she said. Overall, she projected world production at 112.9 million bales, compared with USDA's last call for 113.76 million bales, believing that drought in Australia, global credit restrictions and high input costs will mean fewer acres planted globally.
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