Cotton Market Outlook

John RobinsonDepartment of Agricultural Economics

Texas A&M University College Station, Texas

TWITTER: @aggie_profFACEBOOK: https://www.facebook.com/AgriLifeMasterMarketerNEWSLETTER: http://agrilife.org/cottonmarketing/

Background: World Cotton Production and Consumption

65.00

75.00

85.00

95.00

105.00

115.00

125.00

135.00A

ug-8

6A

ug-8

7A

ug-8

8A

ug-8

9A

ug-9

0A

ug-9

1A

ug-9

2A

ug-9

3A

ug-9

4A

ug-9

5A

ug-9

6A

ug-9

7A

ug-9

8A

ug-9

9A

ug-0

0A

ug-0

1A

ug-0

2A

ug-0

3A

ug-0

4A

ug-0

5A

ug-0

6A

ug-0

7A

ug-0

8A

ug-0

9A

ug-1

0A

ug-1

1A

ug-1

2A

ug-1

3A

ug-1

4A

ug-1

5

Mill

ion

Bal

es

ProductionConsumption

Monthly supply/demand August 1986 – October 2015

Demand IndicatorsU.S. Export Sales and ShipmentsDownstream Demand PullOutside Markets– Retail Demand and General Economy– Currency Markets– Speculative Buying

55.00

60.00

65.00

70.00

75.00

80.00

85.00

90.00

95.00

100.00

-50.000.00

50.00100.00150.00200.00250.00300.00350.00400.00450.00500.00550.00600.00

8/7/20

148/1

4/201

48/2

1/201

48/2

8/201

49/4

/2014

9/11/2

014

9/18/2

014

9/25/2

014

10/2/

2014

10/9/

2014

10/16

/2014

10/23

/2014

10/30

/2014

11/6/

2014

11/13

/2014

11/20

/2014

11/27

/2014

12/4/

2014

12/11

/2014

12/18

/2014

12/25

/2014

1/1/20

151/8

/2015

1/15/2

015

1/22/2

015

1/29/2

015

2/5/20

152/1

2/201

52/1

9/201

52/2

6/201

53/5

/2015

3/12/2

015

3/19/2

015

3/26/2

015

4/2/20

154/9

/2015

4/16/2

015

4/23/2

015

4/30/2

015

5/7/20

155/1

4/201

55/2

1/201

55/2

8/201

56/4

/2015

6/11/2

015

6/18/2

015

6/25/2

015

7/2/20

157/9

/2015

7/16/2

015

7/23/2

015

7/30/2

015

8/6/20

158/1

3/201

58/2

0/201

58/2

7/201

59/3

/2015

9/10/2

015

9/17/2

015

9/24/2

015

10/1/

2015

10/8/

2015

10/15

/2015

Cents/Lb.

000 Ru

nning Ba

les

Net Export Sales Nearby Futures

U.S. Upland Cotton Net Export Sales and Nearby Futures

0%

20%

40%

60%

80%

100%

120%

60

80

100

120

140

160

180

200

220

240

260 A Index

Yarn Index

Cot-Dom Apparel

Apparel CPI

index August 2010 = 100

Sources: Cotlook, Global Trade Atlas, U.S. Department of Commerce

Down Stream Market Pull

+154%

+67%+24% +8%

6.00

7.00

8.00

9.00

10.0019

70/1

971

1971

/197

219

72/1

973

1973

/197

419

74/1

975

1975

/197

619

76/1

977

1977

/197

819

78/1

979

1979

/198

019

80/1

981

1981

/198

219

82/1

983

1983

/198

419

84/1

985

1985

/198

619

86/1

987

1987

/198

819

88/1

989

1989

/199

019

90/1

991

1991

/199

219

92/1

993

1993

/199

419

94/1

995

1995

/199

619

96/1

997

1997

/199

819

98/1

999

1999

/200

020

00/2

001

2001

/200

220

02/2

003

2003

/200

420

04/2

005

2005

/200

620

06/2

007

2007

/200

820

08/2

009

2009

/201

020

10/2

011

2011

/201

220

12/2

013

2013

/201

420

14/2

015

Lbs.

/Pop

ulat

ion

Source: USDA/ERS/WASDE

World Per Capita Cotton Use

U.S. Dollar Index (DX) vs. Nearby Cotton Futures Settlement Price

60

70

80

90

100

110

120

130

8/1/

069/

27/0

611

/22/

061/

25/0

73/

23/0

75/

21/0

77/

18/0

79/

13/0

711

/8/0

71/

9/08

3/7/

085/

5/08

7/1/

088/

27/0

810

/23/

0812

/19/

082/

19/0

94/

17/0

96/

15/0

98/

11/0

910

/7/0

912

/3/0

92/

2/10

3/31

/10

5/27

/10

7/26

/10

9/21

/10

11/1

6/10

1/13

/11

3/14

/11

5/10

/11

7/7/

119/

1/11

10/2

8/11

12/2

7/11

2/24

/12

4/23

/12

6/19

/12

8/15

/12

10/1

1/12

12/7

/12

2/6/

134/

5/13

6/3/

137/

30/1

39/

25/1

311

/20/

131/

21/1

43/

19/1

45/

15/1

47/

14/1

49/

9/14

11/4

/14

1/5/

153/

4/15

4/30

/15

6/26

/15

8/24

/15

10/2

0/15

U.S.

$ In

dex

20

40

6080

100

120

140

160180

200

220

Cent

s/Lb

.

Nearby Futures

U.S. Dollar Index

Daily August 1, 2006 – October 21, 2015

Fund Sector buying of cotton futures represents a non-commercial source of (sometimes fleeting) demand.2014 major price moves up (in April) and down (June-July) appeared to be spec influenced.2015 pattern shows less influence.

Fund Influences

Cotton: Net Positions of Index Funds, Hedge Funds, vs. Nearby Futures Prices

-40,000-20,000

020,00040,00060,00080,000

100,000120,000140,000

2/7/

063/

21/0

65/

2/06

6/13

/06

7/25

/06

9/5/

0610

/17/

0611

/28/

061/

9/07

2/20

/07

4/3/

075/

15/0

76/

26/0

78/

7/07

9/18

/07

10/3

0/07

12/1

1/07

1/22

/08

3/4/

084/

15/0

85/

27/0

87/

8/08

8/19

/08

9/30

/08

11/1

1/08

12/2

2/08

2/3/

093/

17/0

94/

28/0

96/

9/09

7/21

/09

9/1/

0910

/13/

0911

/24/

091/

5/10

2/16

/10

3/30

/10

5/11

/10

6/22

/10

8/3/

109/

14/1

010

/26/

1012

/7/1

01/

18/1

13/

1/11

4/12

/11

5/24

/11

7/5/

118/

16/1

19/

27/1

111

/8/1

112

/20/

111/

31/1

23/

13/1

24/

24/1

26/

5/12

7/17

/12

8/28

/12

10/9

/12

11/2

0/12

12/3

1/12

2/12

/13

3/26

/13

5/7/

136/

18/1

37/

30/1

39/

10/1

310

/22/

1312

/3/1

31/

14/1

42/

25/1

44/

8/14

5/20

/14

7/1/

148/

12/1

49/

23/1

411

/4/1

412

/16/

141/

27/1

53/

10/1

54/

21/1

56/

2/15

7/14

/15

8/25

/15

10/6

/15

Weekly

No.

of C

ontr

acts

20406080100120140160180200220

Cen

ts/L

b.

Index Funds Hedge Funds Nearby Futures

January 3, 2006 Through October 13, 2015

Source: Commitment of Traders Supplemental Report (Futures and Options)

Hedge fund buying associated with 9 cents of this 12 cent rally, i.e., funds more influential than fundamentals

Cotton: Net Positions of Index Funds, Hedge Funds, vs. Nearby Futures Prices

-40,000-20,000

020,00040,00060,00080,000

100,000120,000140,000

2/7/

063/

21/0

65/

2/06

6/13

/06

7/25

/06

9/5/

0610

/17/

0611

/28/

061/

9/07

2/20

/07

4/3/

075/

15/0

76/

26/0

78/

7/07

9/18

/07

10/3

0/07

12/1

1/07

1/22

/08

3/4/

084/

15/0

85/

27/0

87/

8/08

8/19

/08

9/30

/08

11/1

1/08

12/2

2/08

2/3/

093/

17/0

94/

28/0

96/

9/09

7/21

/09

9/1/

0910

/13/

0911

/24/

091/

5/10

2/16

/10

3/30

/10

5/11

/10

6/22

/10

8/3/

109/

14/1

010

/26/

1012

/7/1

01/

18/1

13/

1/11

4/12

/11

5/24

/11

7/5/

118/

16/1

19/

27/1

111

/8/1

112

/20/

111/

31/1

23/

13/1

24/

24/1

26/

5/12

7/17

/12

8/28

/12

10/9

/12

11/2

0/12

12/3

1/12

2/12

/13

3/26

/13

5/7/

136/

18/1

37/

30/1

39/

10/1

310

/22/

1312

/3/1

31/

14/1

42/

25/1

44/

8/14

5/20

/14

7/1/

148/

12/1

49/

23/1

411

/4/1

412

/16/

141/

27/1

53/

10/1

54/

21/1

56/

2/15

7/14

/15

8/25

/15

10/6

/15

Weekly

No.

of C

ontr

acts

20406080100120140160180200220

Cen

ts/L

b.

Index Funds Hedge Funds Nearby Futures

January 3, 2006 Through October 13, 2015

Source: Commitment of Traders Supplemental Report (Futures and Options)

Hedge fund liquidation and outright selling associated with 11 cents of this 24 cent price decline.

Cotton: Net Positions of Index Funds, Hedge Funds, vs. Nearby Futures Prices

-40,000-20,000

020,00040,00060,00080,000

100,000120,000140,000

2/7/

063/

21/0

65/

2/06

6/13

/06

7/25

/06

9/5/

0610

/17/

0611

/28/

061/

9/07

2/20

/07

4/3/

075/

15/0

76/

26/0

78/

7/07

9/18

/07

10/3

0/07

12/1

1/07

1/22

/08

3/4/

084/

15/0

85/

27/0

87/

8/08

8/19

/08

9/30

/08

11/1

1/08

12/2

2/08

2/3/

093/

17/0

94/

28/0

96/

9/09

7/21

/09

9/1/

0910

/13/

0911

/24/

091/

5/10

2/16

/10

3/30

/10

5/11

/10

6/22

/10

8/3/

109/

14/1

010

/26/

1012

/7/1

01/

18/1

13/

1/11

4/12

/11

5/24

/11

7/5/

118/

16/1

19/

27/1

111

/8/1

112

/20/

111/

31/1

23/

13/1

24/

24/1

26/

5/12

7/17

/12

8/28

/12

10/9

/12

11/2

0/12

12/3

1/12

2/12

/13

3/26

/13

5/7/

136/

18/1

37/

30/1

39/

10/1

310

/22/

1312

/3/1

31/

14/1

42/

25/1

44/

8/14

5/20

/14

7/1/

148/

12/1

49/

23/1

411

/4/1

412

/16/

141/

27/1

53/

10/1

54/

21/1

56/

2/15

7/14

/15

8/25

/15

10/6

/15

Weekly

No.

of C

ontr

acts

20406080100120140160180200220

Cen

ts/L

b.

Index Funds Hedge Funds Nearby Futures

January 3, 2006 Through October 13, 2015

Source: Commitment of Traders Supplemental Report (Futures and Options)

Sidebar: China Influences

End of stockpiling, but…― Quality // Auction price of reserves???― Downside price risk depends on how

fast/much they work it off.― They’ve said that they want to release 9%

over the summer of 2015.

What is Impact of Chinese Farm, Trade, & Reserves Policy?

Alternative Paths for Whittling Down Chinese Stocks

China’s plan for selling 1M tonnes during Summer 2015 represents a 9% year‐over‐year reduction.

Resulting Impacts on U.S. Farm Price

End of stockpiling, but…― Quality // Auction price of reserves???― Downside price risk depends on how

fast/much they work it off.― They’ve said that they want to release 9%

over the summer of 2015.

New target price policy encourages consumption of domestic cotton.Limiting import quota reinforces this.Impact on Chinese imports???????

Summary China Issue: What is Impact on Cotton Imports?

Chinese cotton demand hits all‐time lowChinese cotton imports reached an all‐time low in September, as large domestic inventories reduced reliance on foreign supplies, at a time when economic slowdown is weighing on demand. 

Website CNCotton reports that China imported just 50,900 tonnes of cotton in September, a decline of 59% year‐on‐year.  This is the lowest monthly import since records began in 2005, and the second month of record low imports in a row. 

The data from CNCotton follows reports on Wednesday from the China Cotton Association that Chinese imports for the first nine months of the year fell 42% to 1.16m tonnes.

Historically low and late plantingsAmple moisture in TX until August Other places also took a hit from too-cool and too-hot weatherUSDA apparently factored all that into August forecast of low yield and normal abandonment.USDA’s September and October forecasts still calling for small crop

U.S. New Crop Situation

State Area Harvested October 1 Yield Production

Alabama 312.0 838.0 545.0

Arizona 101.0 1,511.0 318.0

Arkansas 205.0 1,218.0 520.0

California 160.0 1,548.0 516.0

Florida 83.0 810.0 140.0

Georgia 1,110.0 995.0 2,300.0

Kansas 15.0 864.0 27.0

Louisiana 107.0 1,032.0 230.0

Mississippi 315.0 1,112.0 730.0

Missouri 175.0 1,070.0 390.0

New Mexico 37.3 1,042.0 81.0

North Carolina 380.0 891.0 705.0

Oklahoma 195.0 702.0 285.0

South Carolina 232.0 797.0 385.0

Tennessee 140.0 994.0 290.0

Texas 4,515.0 604.0 5,686.0

Virginia 84.0 1,086.0 190.0

United States 8,166.3 784.0 13,338.0

All Cotton Area Harvested, Yield and Production by States and United States, 2015

Source: USDA/NASS October 2015 Crop Production, Thousand Acres

All Cotton Area Harvested, 2015Alabama, 312

Arizona, 101 Arkansas, 205California, 160

Georgia, 1110Louisiana, 107Mississippi, 315

Missouri, 175N. Carolina, 380

Oklahoma, 195S. Carolina, 232Tennessee, 140

Texas, 4515

Other*, 219

Total Area Harvested = 8,166.3 Thousand Acres*Includes Florida (83.0), Kansas (15.0), New Mexico (37.3), and Virginia (84.0)

All Cotton ProductionAlabama, 545 Arizona, 318

Arkansas, 520California, 516

Georgia, 2300

Louisiana, 230

Mississippi, 730

Missouri, 390N. Carolina, 705

Oklahoma, 285S. Carolina, 385Tennessee,

290

Texas, 5686

Other*, 438

Total Production = 13,338 Thousand Acres *Includes Florida (140.0), Kansas (27.0), New Mexico (81.0), and Virginia (190.0)

10.00

15.00

20.00

25.0020

00/0

1

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

September Projection Final

U.S. All Cotton Production, Final Estimate vs. September Projection, and Percentage Difference,

2000 - 2014

Source: USDA/WASDE, monthly

-6.17%

1.55%

-5.07% 7.79%

11.24%7.23%

6.09%

7.86%

-7.44%-9.30%

-3.93%

-5.98%

1.23%

0.08%

-1.33%

(Million Bales)

2015 Balance Sheet

The historical variation in the production forecast suggests a possible range of 12.7M to 14.2M.

Current bottom line is mildly stock reducing, year-over-year (historically price supporting)

December 2015 Futures Settlement vs. December Futures Average Monthly Price for Stable, Larger, and Smaller Carryover Season

5456586062646668707274

J F M A M J J A S O N D

Cen

ts/L

b. (m

onth

ly)

5456586062646668707274

Cen

ts/L

b. (d

aily

)

Dec’15 Settlement Price (daily)

Stable Carryover (’95, ’97, ’98, ’99)

Smaller Carryover (’89, ’90, ’93, ’94, ’02, ’03, ‘09, ‘13)

Larger Carryover (’91, ’92, ’96, ’00, ’01, ’04, ‘05, ‘06, ‘07, ‘12, ‘14)

What About 2016?

59606162636465666768

J F M A M J J A S O

Daily

Cen

ts/L

b.

January 2, 2015 – October 21, 2015

Dec. ‘16

Dec. ‘15

Dec’16 futures in the same range2016 CBOT futures similar to 2015 –Maybe a little lower relative to cotton

No reason for big acreage shift – Low planted acreage is a set-up for later weather market

El Niño winter moisture suggests good yields & low abandonment –Unless La Niña drought starts in May

China stockpile still around

More of the Same in 2016?

January – February – March 2016

March – April – May 2016

May – June – July 2016

June – July ‐‐ August 2016

“Cotton Spin” Column, Southwest Farm Presshttp://southwestfarmpress.com/author/john-robinson

CONTACT INFOPhone: 979-845-8011Email: jrcr@tamu.edu

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