USDA pegs 2014-15 cotton supplies at six-year high

The US Department of Agriculture (USDA) on Wednesday forecast US cotton inventories for the upcoming season will hit their highest in six years as farmers grow more fiber after favourable planting conditions, keeping prices under pressure. The report was broadly in line with the market's consensus forecast, reinforcing expectations that the current low stocks will be replenished by a healthy crop after recent rains have watered crops in Texas, the country's main cotton-producing state, during a critical time in their development.
The USDA forecast US inventories by the end of July 2015 will hit 4.3 million 480-lb bales, up by nearly two-thirds from this year's three-year low of 2.7 million bales and up sharply from a May forecast of 3.9 million bales. The change came as the USDA raised its outlook for US production in the 2014-15 crop year that begins on August 1 to 15 million bales from last month's forecast of 14.5 million bales.
That was at the low end of industry expectations after favorable rainfall during the spring plantings season fostered confidence about output. The benchmark December cotton contract on ICE Futures US , which represents the 2014-15 harvest, ended down 0.06 cent, or 0.08 percent, at 77.19 cents a lb on Wednesday.
"The report was negative, but largely expected," said Sharon Johnson, a cotton specialist with KCG Futures in Georgia. Traders widely shrugged off the USDA projection that global inventories will reach 102.7 million bales by the end of July 2015. That was a fresh record forecast, above last month's projection of 101.7 million bales due to expectations of higher starting supplies.
The whopping inventories could satisfy world demand for nearly a full year, though the majority of those supplies are held in top consumer China and are considered unavailable to the world market. The USDA lowered its forecast for China's import demand to 8 million bales from a previous forecast of 8.5 million bales and down 40 percent from an estimated 13.5 million in 2013-14 as Beijing overhauls its stockpiling program. The world supply outlook "is bearish, but the market is somewhat numb to it," said Louis Rose, an independent cotton trader and consultant at Risk Analytics in Tennessee. The USDA raised its outlook for world demand to a four-year high of 112.3 million bales, softening the otherwise bearish world balance sheet outlook as the agency upped its May forecast 111.8 million bales.