By Sharon Johnson

Cotton Analyst

First Capitol Group

Since the USDA issued their August revised balance sheets, futures have rallied almost another 500 pts for a 3-week total of 1,275 pts with the December.  The report was far more bullish than any trader could have expected with near-term factors such as continued forward buying, Pakistani flood concerns and uncertainty with India’s export policy trumping longer-term economic concerns Thursday and Friday. 

In the supply side of the World 2009/10 figures, Brazil’s crop was lowered to 5.35 mln bales as yields were trimmed to 1,393 kgs/ha.  The cut pulled the yield down to 771 kgs/ha from 774 kgs/ha and the global crop is estimated at 116.02 mln bales, well below that of the past 5 years.  Moving on to new crop, several countries enjoyed increases including the US, India, Turkey, and Australia.  Planted area was upped in India to 10.7 mln, 440K higher than the 2009 level.  With a yield of 529 kgs/ha, production is estimated at 26 mln bales and a new record.  Pakistan was reduced by 700K to 9.5 mln bales “due to estimated losses from floods” by way of smaller area and yields.   From a net increase in area of 360K hectares but a drop of 3 kgs to the yield at 771 kgs/ha, world production is estimated at 116.85 mln bales, the third largest in history (2005 and 2006 saw crops of 123.8 and 123.3 mln).  

Building on changes made last month, additional reductions were made to beginning stocks in Pakistan due to smaller crops from 2005 and 2006 for a two-month decrease of 1.87 mln bales.  In addition, higher exports from India reduced their beginning stocks by 1.0 mln bales as of Aug 1, 2009.  Hence, from the Jul and August monthly reports, Indian and Pakistani beginning stocks as of Aug 1, 2009 are down 2.87 mln bales.  Supply felt the pinch of a smaller crop and much smaller carry-in falling to 162.7 mln.  

Turning to the other side of the coin, two weeks after the crop year ended, China’s consumption was boosted by 1 mln bales to 48.5 mln bales pushing consumption to 117.7 mln bales, an increase of 7.8 mln bales or 7.1% from the recession driven 2008 level.  Given that GDP in the US or on a global scale netted out to a near zero in the second half of 2009 through the first half of 2010, this is indeed an amazing feat.  Much lower carry-in and the higher usage drove ending stocks down by 3.41 mln to 47.58 mln bales.  

The new crop year began with a jaw-dropping decline of 6.7% to beginning stocks from 50.99 to 47.58 mln bales.  When the preceding month’s cut of 1.25 mln is included, stocks as of Aug 1, 2010 are down 4.6 mln.  The larger crop did not make much of a dent in supply with a figure of 164.5 mln, 1.8 mln above 2009 but below every prior year since 2004.  “Based on recent indications of higher offtake” the WAOB raised China’s consumption by the same amount as a year ago of 1 mln bales to 50 mln bales, the second highest on record and only 1 mln less than the 2007 record of 51 mln bales.  Global consumption is forecast at 120.87 mln 1.17 mln above the July estimate and 3.2 mln above the 2009/10 year.  To put this in better perspective, the newly revised consumption figure projection is 11 mln bales above the 2008/09 recession-driven low and only 2.93 mln bales shy of the all-time record of 123.8 mln bales from the 2006/07 crop year.  The WAOB raised Chinese imports by 850K to 12.5 mln bales, the second largest figure on record to meet their additional needs.