Sharon C Johnson: Ten days after USDA cotton supply/demand report
Atlanta, Ga - It has been a week-and-a half since the USDA released their monthly supply and demand report and in that time, the December contract has closed 325 pts higher as of Aug 19, 2010 but faltered a bit since.
Given how dramatic the bullish changes were, one would have expected a more explosive reaction. Since the Dec had already rallied by almost 800 pts on a close basis leading up to the report, much of the inherent bullishness was already built in.
As mentioned in my post-USDA report, a reduction of 5 million bales over a period of 2 months to the bottomline with world carryout is an astonishing number and certainly shows as one savvy source put it “they are not afraid to make big changes”. In this case it was a combination of adjustments from prior years involving Pakistan and India along with higher consumption estimates concerning China.
On some level, the 1.25 million bales removed from Pakistan was never there, they were, until this year, running so efficiently the loss was not an issue.
As for India, the additional 1.0 mln bales exported from 2005-2007 went somewhere, the WAOB just does not appear to know where. I suspect it will be found and at some point, hopefully not in a bearish year, a similar amount will be added back to the balance sheet.
I was reminded by another savvy source this past week of something we all know but tend to forget from time to time. The amount of cotton in the pipeline, storage, field, semi-finished and finished textile product etc was, for the most part, the same in August as in July or in June, the USDA simply changed their numbers as their information was updated to reflect as much as of Jul 31, 2010 and Jul 31, 2011.
It is all about perception; one of the first speeches I heard delivered by Joe Nicosia, Allenberg’s CEO, was on just that topic. It is not about what is, but our perception of what is, and the USDA rather handedly shook our perception of the world supply/demand balance sheet.