1999 Cotton Market Will Likely Remain Bearish
USDA, in it's March 31st Prospective Plantings report, estimated 1999 US cotton at 13.94 million acres to be planted-- a 4% increase from last year. Earlier forecasts from the National Cotton Council and Sparks Commodities had placed plantings at 13.5 and 14.7 million acres respectively. Although the acreage estimate was a less than anticipated by some observers, the report was pretty much in line with market expectations and should be supportive, if not bearish, for new crop prices.
If realized, plantings of this magnitude could produce a crop of 17.5 to 18 million bales- about 4 million bales more than the '98 crop. It is difficult at this early juncture, therefore, to find much positive news on the new crop. We need to be reminded that you can drown in 7 feet of water as easily as 10 feet. The fact that the 13.9 number might be "less than anticipated" makes no matter to the market in my estimation.
To date, nothing has yet been decided on continued Step 2 funding. Funding for Step 2 failed to make it into the most recent House and Senate budget proposals. Although not all hope is lost and industry efforts continue to push for Step 2 funds, time may be of the essence.
There continues to be hope that December futures will at some point rally to the 63 cent area or better-- giving growers an opportunity to contract at 60 cents. Recent US domestic mill use and export reports have been more encouraging and gives rise to hopes of better prices. But the bottom line remains "what are we to do with another 4 million bales of cotton". Unless world supply is trimmed or demand improves, even funding of Step 2 might not be much help.
Yet, there is a lot of water to pass under the bridge before the final outcome is known. So let's not completely give up hope. Weather problems in the US or elsewhere, Step 2 funding, and/or improved demand could give a boost to the market. No price boost are expected until after planting season. Higher prices anytime over the next 2 months would just encourage more acreage-- a signal the market is not going to send. (Don Shurley)
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