What is in this article?:
- Cotton carryover key to understanding market
- Importance of inventory data
- U.S. commodity market analysts often voice concerns when they believe that USDA grain, oilseeds and cotton inventory estimates are inconsistent with other market indicators. While some of that may be convenient cover for faulty analysis, the situations in India and China show the importance of inventory data from around the world in facilitating price discovery and aiding in government trade policy decision making.
India shook the global cotton trade in early March by suddenly shutting off additional registrations of cotton for exports and indicating that some cotton already registered may not be shipped. The latest supply, demand, exports and stocks estimates by the Foreign Agricultural Service (FAS) of USDA provides a clearer picture of conditions, but shows again the importance of timely release of data on inventories and use.
(For more, see: Bears back in control of global cotton market)
The largest changes in world numbers came from within India as FAS analyzed additional information released by the Indian government. Based on domestic use and exports for August through November, FAS has estimated that cotton stocks on hand on August 1, 2011 were 10.85 million bales, 3.25 million bales higher than thought earlier at 7.60 million bales, a 42.8 percent increase. FAS had been carrying a negative residual number for the 2010/11 marketing year indicating they believed there was an imbalance somewhere in the supply, demand and stocks estimates. FAS relies mainly on official Indian data and balance sheet estimates provided by the India Cotton Advisory Board.
Based on the amount of cotton already registered for export, FAS increased Indian exports for the 2011/12 marketing year by 1.15 million bales to 8.9 million bales, a 14.8 percent increase. India’s production was lowered by 500,000 bales to 26.5 million bales, almost unchanged from a year earlier. Domestic use estimates were unchanged from March at 19.5 million bales, down 1.6 million bales from a year earlier. End of the marketing year stocks on July 31 were increased by 1.6 million bales from 7.9 million bales last month to 9.5 million bales this month, down from 10.8 million bales last year, but higher than the previous three years.
Buying by the Chinese government to fill state reserve stocks helped to spur the Indian export ban. FAS now estimates Chinese cotton imports for 2011/12 at 20.5 million bales, up 2.0 million bales from last month, and far above recent years of 11.0-12.0 million bales. China’s production was left unchanged at 33.5 million bales, up 3.0 million bales from last year, while domestic consumption was lowered 1.0 million bales to 42.5 million bales, down from 46.0 million bales last year and the lowest in the past five years. The cumulative effect of these changes was to increase the carryover stocks for this year by 3.0 bales to 23.1 million, almost double last year’s carryover of 11.6 million bales, but near the 20.5 million bales held at the end of 2007/08 and 22.4 million bales at the end of 2008/09.
The Chinese government announced in the spring of 2011 it would buy cotton for the national reserve during harvest to support farm prices. They had been record high in 2011 because of tight stocks at the end of the 2009/10 and only modest stocks building was expected in 2010/11. The government gave no indication of how much it would buy, but the FAS reports that domestic purchases for the reserve have been about 14.0 million bales, 41.8 percent of domestic production in 2011 and 60.6 percent of Chinese carryover at the end of the marketing year.