Monthly Economic Letter
U.S. and Global Market Fundamentals
September 14, 2009
Cotton Incorporated
www.cottoninc.com
After briefly breaching 65 cents/lb, the December contract fell sharply over a few of days in mid-August before finding support near 58 cents/lb. In the weeks since, December futures have gradually drifted upwards, surpassing 61 cents/lb in recent trading. Movement in the A Index followed the same pattern, but was more muted, dropping from levels over 65 cents to 62 cents/lb before slowly climbing back up to levels just over 63 cents/lb. With ongoing absence of strong fundamental signals, cotton prices appear to continue to take direction from outside market forces. An apparent correlation is with equities. The link between stocks and cotton prices could be reflective of investment flows, but could also be a product of the relative value of the dollar, which has tended to trade inversely to equities - weakening when stocks rise and strengthening when stock prices fall. Such movement in the dollar, when initiated by changes in equity values, could also cause cotton prices to follow a pattern similar to that of stock prices. While macroeconomic evidence from across the world suggests that the worst declines of the recession may be in the past, signs of growth remain scarce. As a result, with the possible exception of China, consumer demand for textile products across the world continues to be weak. The latest USDA report reflects the persistent stagnant state of the global economy with consumption estimates largely unchanged, decreasing only 17,000 bales worldwide. Among the few notable revisions was a 250,000 bale reduction for China, which was mostly offset by a 200,000 bale increase for India. The relative absence of significant changes to consumption estimates resulted in few changes to world trade figures. Estimated exports increased only 40,000 bales worldwide, with a 300,000 bale reduction to the Indian estimate more than counterbalanced by a 300,000 bale increase in export expectations from the United States and a 100,000 bale increase to the Pakistani figure. Production estimates saw more significant revision, with the world estimate reduced 819,000 bales. The largest individual change was for Indian production, which declined 1.0 million bales despite recent projections by the Cotton Corporation of India that acreage would likely surpass the 10 million hectare mark for the first time in 2009/10. Planting encouraged by last year’s increase in the guaranteed minimum price will face dry conditions that have already left India with 20.0% less water year-to-date than the long-term average and make low yields a strong possibility in 2009/10. In contrast, weather conditions have been largely favorable across the U.S. With the exception of non-irrigated acres in southeastern Texas, which have been hit with severe drought, the U.S. cotton crop is generally reported to be in good condition and the U.S. production forecast was raised 231,000 bales. Harvesting has begun in some areas of China and production expectations remain unchanged from previous months. Due to lower acreage, the forecast for the current Chinese crop is at a level 6.4% lower than in 2008/09 (33.8 million bales in 2009/10 compared to 35.8 million bales in 2008/09). The decrease in the world production figure, combined with a 388,000 bale reduction in estimated beginning stocks, contributed to a 1.2 million bale reduction to forecast world ending stocks. The reduction in ending stocks decreased the stocks-to-use ratio 1.1 percentage points from last month’s projection (from 51.0% to 49.9%). Challenging any fundamentals-based price movement, however, will continue to be the weak state of the global economy and reluctant consumer demand. Until demand resurfaces, prices could be expected to continue to move in a sideways pattern, fluctuating with outside market forces while remaining within a trading range.
Balance Sheets
U.S. (bales) U.S. (tons)
Data Tables and Price Charts Production Exports Consumption
Imports
Bales Tons
Prices
Last 3 Years Last 3 Months
World (bales) World (tons)
Bales Tons
Bales Tons
Bales Tons
U.S. Cotton Balance Sheet
Millions of 480 lb. Bales 2005/06 2006/07 2007/08 2008/09 2009/10 August 6.1 13.2 0.0 19.3 3.5 10.2 13.7 5.6 40.9% 2009/10 September 6.2 13.4 0.0 19.6 3.5 10.5 14.0 5.6 40.0%
Beginning Stocks Production Imports Supply U.S. Mill Use Exports Demand Ending Stocks Stocks/Use Ratio Source: USDA
5.5 23.9 0.0 29.4 5.9 17.5 23.4 6.1 25.9%
6.1 21.6 0.0 27.7 4.9 13.0 17.9 9.5 52.8%
9.5 19.2 0.0 28.7 4.6 13.7 18.2 10.0 55.1%
10.0 12.8 0.0 22.9 3.6 13.3 16.9 6.2 36.7%
World Cotton Balance Sheet
Millions of 480 lb. Bales 2005/06 2006/07 2007/08 2008/09 2009/10 August 61.9 105.9 167.7 112.8 46.5 66.3 57.5 17.4 40.1 51.0% 2009/10 September 61.5 105.1 166.5 112.7 46.3 66.5 56.3 17.6 38.6 49.9% return to text
Beginning Stocks Production Supply Consumption China Non‐China h Ending Stocks China Non‐China Stocks/Use Ratio Source: USDA
60.5 116.7 177.2 116.4 45.0 71.4 62.2 22.5 39.7 53.5%
62.2 122.0 184.2 123.1 50.0 73.1 63.3 20.5 42.8 51.4%
63.3 120.5 183.8 122.8 51.5 71.3 63.1 20.0 43.1 51.4%
63.1 106.7 169.7 110.7 45.3 65.4 61.5 20.0 41.5 55.5%
World Cotton Production
Millions of 480 lb. Bales 2005/06 2006/07 2007/08 2008/09 2009/10 August 33.5 25.0 13.2 9.2 5.4 4.4 1.8 1.7 1.7 1.2 1.0 1.0 0.9 0.9 0.7 4.5 105.9 2009/10 September 33.5 24.0 13.4 9.2 5.4 4.4 1.8 1.7 1.7 1.2 1.0 1.0 0.9 0.9 0.7 4.4 105.1
China India United States Pakistan Brazil Uzbekistan Australia Turkey African Franc Zone Turkmenistan EU‐27 Syria Greece Burkina Argentina Rest of World World Total Source: USDA
28.4 19.1 23.9 10.2 4.7 5.6 2.8 3.6 2.5 1.0 2.5 1.6 2.0 1.4 0.6 7.0 116.7
35.5 21.8 21.6 9.9 7.0 5.4 1.4 3.8 2.3 1.2 1.6 1.0 1.4 1.3 0.8 6.0 122.0
37.0 24.6 19.2 8.9 7.4 5.4 0.6 3.1 1.6 1.3 1.7 1.1 1.6 0.7 0.7 5.7 120.5
35.8 22.5 12.8 9.0 5.5 4.6 1.5 1.9 1.6 1.4 1.2 1.1 1.2 0.9 0.6 5.1 106.7
World Cotton Exports
Millions of 480 lb. Bales 2005/06 2006/07 2007/08 2008/09 2009/10 August 10.2 6.4 4.0 1.8 1.6 1.0 0.9 0.8 0.5 0.4 0.3 0.4 0.4 0.3 0.3 2.8 32.0 2009/10 September 10.5 6.1 4.0 1.8 1.6 1.0 0.9 0.8 0.5 0.4 0.4 0.4 0.3 0.3 0.3 2.8 32.0 return to text
United States India Uzbekistan Brazil Australia Turkmenistan Burkina Greece Tajikistan Benin Pakistan Zimbabwe Kazakhstan Mali Tanzania Rest of World World Total Source: USDA
17.5 3.5 4.8 2.0 2.9 0.6 1.4 1.4 0.6 0.5 0.3 0.4 0.9 1.0 0.4 6.6 44.6
13.0 4.6 4.5 1.3 2.1 0.7 1.4 1.3 0.6 0.5 0.2 0.4 0.9 0.9 0.1 4.8 37.0
13.7 7.0 4.2 2.2 1.2 0.8 0.8 1.3 0.5 0.5 0.3 0.4 0.5 0.5 0.2 4.3 38.3
13.3 2.3 2.6 2.7 1.2 0.5 0.8 0.8 0.3 0.4 0.4 0.3 0.4 0.3 0.3 3.0 29.6
World Cotton Consumption
Millions of 480 lb. Bales 2005/06 2006/07 2007/08 2008/09 2009/10 August 46.5 18.3 12.0 5.1 4.2 3.5 3.1 2.1 1.9 1.7 1.2 1.0 0.9 0.9 0.9 9.6 112.8 2009/10 September 46.3 18.5 12.0 5.1 4.2 3.5 3.1 2.1 1.9 1.7 1.2 1.0 0.9 0.9 0.9 9.6 112.7
China India Pakistan Turkey Brazil United States Bangladesh Indonesia Mexico Thailand Vietnam South Korea Russia Uzbekistan Egypt Rest of World World Total Source: USDA
45.0 16.7 11.5 6.9 4.5 5.9 2.2 2.2 2.1 2.1 0.8 1.1 1.4 0.8 1.0 12.4 116.4
50.0 18.1 12.0 7.3 4.6 4.9 2.5 2.2 2.1 2.0 1.0 1.1 1.4 0.9 1.0 12.1 123.1
51.5 18.6 12.0 6.0 4.6 4.6 2.8 2.2 2.0 2.0 1.2 1.0 1.2 1.0 1.0 11.2 122.8
45.3 17.9 11.5 5.0 4.2 3.6 2.9 2.0 1.9 1.6 1.2 1.0 1.0 1.0 0.9 9.8 110.7
World Cotton Imports
Millions of 480 lb. Bales 2005/06 2006/07 2007/08 2008/09 2009/10 August 8.0 3.3 3.1 3.0 2.1 1.7 1.6 1.2 1.0 0.9 0.7 0.4 0.4 0.4 0.3 3.8 32.0 2009/10 September 8.0 3.3 3.1 3.0 2.1 1.7 1.6 1.2 1.0 0.9 0.7 0.4 0.4 0.4 0.3 3.8 32.0 return to text
China Turkey Bangladesh Pakistan Indonesia Thailand Mexico Vietnam South Korea Russia Taiwan Egypt Japan India Iran Rest of World World Total Source: USDA
19.3 3.5 2.2 1.6 2.2 1.9 1.7 0.7 1.0 1.4 1.1 0.5 0.7 0.4 0.1 6.1 44.5
10.6 4.0 2.5 2.3 2.2 1.9 1.4 1.0 1.1 1.4 1.2 0.5 0.6 0.5 0.3 6.1 37.5
11.5 3.3 2.8 3.9 2.3 1.9 1.5 1.2 1.0 1.2 1.0 0.4 0.6 0.6 0.3 4.9 38.3
7.0 2.9 3.0 2.2 2.0 1.6 1.3 1.1 1.0 1.0 0.7 0.4 0.4 0.6 0.3 3.7 29.3
U.S. Cotton Balance Sheet
Millions of Metric Tons 2005/06 2006/07 2007/08 2008/09 2009/10 August 1.3 2.9 0.0 4.2 0.8 2.2 3.0 1.2 40.9% 2009/10 September 1.3 2.9 0.0 4.3 0.8 2.3 3.0 1.2 40.0%
Beginning Stocks Production Imports Supply U.S. Mill Use Exports Demand Ending Stocks Stocks/Use Ratio Source: USDA
1.2 5.2 0.0 6.4 1.3 3.8 5.1 1.3 25.9%
1.3 4.7 0.0 6.0 1.1 2.8 3.9 2.1 52.8%
2.1 4.2 0.0 6.2 1.0 3.0 4.0 2.2 55.1%
2.2 2.8 0.0 5.0 0.8 2.9 3.7 1.3 36.7%
World Cotton Balance Sheet
Millions of Metric Tons 2005/06 2006/07 2007/08 2008/09 2009/10 August 13.5 23.1 36.5 24.5 10.1 14.4 12.5 3.8 8.7 51.0% 2009/10 September 13.4 22.9 36.3 24.5 10.1 14.5 12.2 3.8 8.4 49.9% return to text
Beginning Stocks Production Supply Consumption h China Non‐China Ending Stocks China Non‐China Stocks/Use Ratio Source: USDA
13.2 25.4 38.6 25.3 9.8 15.6 13.6 4.9 8.6 53.5%
13.6 26.6 40.1 26.8 10.9 15.9 13.8 4.5 9.3 51.4%
13.8 26.2 40.0 26.7 11.2 15.5 13.7 4.4 9.4 51.4%
13.7 23.2 37.0 24.1 9.9 14.2 13.4 4.3 9.0 55.5%
World Cotton Production
Millions of Metric Tons 2005/06 2006/07 2007/08 2008/09 2009/10 August 7.3 5.4 2.9 2.0 1.2 1.0 0.4 0.4 0.4 0.3 0.2 0.2 0.2 0.2 0.1 1.0 23.1 2009/10 September 7.3 5.2 2.9 2.0 1.2 1.0 0.4 0.4 0.4 0.3 0.2 0.2 0.2 0.2 0.1 1.0 22.9
China India United States Pakistan Brazil Uzbekistan Australia Turkey African Franc Zone Turkmenistan EU‐27 Syria Greece Burkina Argentina Rest of World World Total Source: USDA
6.2 4.1 5.2 2.2 1.0 1.2 0.6 0.8 0.5 0.2 0.5 0.3 0.4 0.3 0.1 1.5 25.4
7.7 4.7 4.7 2.2 1.5 1.2 0.3 0.8 0.5 0.3 0.4 0.2 0.3 0.3 0.2 1.3 26.6
8.1 5.4 4.2 1.9 1.6 1.2 0.1 0.7 0.3 0.3 0.4 0.2 0.3 0.1 0.2 1.2 26.2
7.8 4.9 2.8 2.0 1.2 1.0 0.3 0.4 0.4 0.3 0.3 0.2 0.3 0.2 0.1 1.1 23.2
World Cotton Exports World Cotton Exports
Millions of Metric Tons 2005/06 2006/07 2007/08 2008/09 2009/10 August 2.2 1.4 0.9 0.4 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.6 7.0 2009/10 September 2.3 1.3 0.9 0.4 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.6 7.0 return to text
United States India Uzbekistan Brazil Australia Turkmenistan Burkina Greece Tajikistan Benin Pakistan Zimbabwe Kazakhstan Mali Tanzania Rest of World World Total Source: USDA
3.8 0.8 1.0 0.4 0.6 0.1 0.3 0.3 0.1 0.1 0.1 0.1 0.2 0.2 0.1 1.4 9.7
2.8 1.0 1.0 0.3 0.5 0.2 0.3 0.3 0.1 0.1 0.0 0.1 0.2 0.2 0.0 1.0 8.1
3.0 1.5 0.9 0.5 0.3 0.2 0.2 0.3 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.9 8.3
2.9 0.5 0.6 0.6 0.3 0.1 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.7 6.4
World Cotton Consumption
Millions of Metric Tons 2005/06 2006/07 2007/08 2008/09 2009/10 August 10.1 4.0 2.6 1.1 0.9 0.8 0.7 0.4 0.4 0.4 0.3 0.2 0.2 0.2 0.2 2.1 24.5 2009/10 September 10.1 4.0 2.6 1.1 0.9 0.8 0.7 0.4 0.4 0.4 0.3 0.2 0.2 0.2 0.2 2.1 24.5
China India Pakistan Turkey Brazil United States Bangladesh Indonesia Mexico Thailand Vietnam South Korea Russia Uzbekistan Egypt Rest of World World Total Source: USDA
9.8 3.6 2.5 1.5 1.0 1.3 0.5 0.5 0.5 0.4 0.2 0.2 0.3 0.2 0.2 2.7 25.3
10.9 3.9 2.6 1.6 1.0 1.1 0.5 0.5 0.5 0.4 0.2 0.2 0.3 0.2 0.2 2.6 26.8
11.2 4.0 2.6 1.3 1.0 1.0 0.6 0.5 0.4 0.4 0.3 0.2 0.3 0.2 0.2 2.4 26.7
9.9 3.9 2.5 1.1 0.9 0.8 0.6 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.2 2.1 24.1
World Cotton Imports
Millions of Metric Tons 2005/06 2006/07 2007/08 2008/09 2009/10 August 1.7 0.7 0.7 0.7 0.5 0.4 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.8 7.0 2009/10 September 1.7 0.7 0.7 0.7 0.5 0.4 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.8 7.0 return to text
China Turkey Bangladesh Pakistan Indonesia Thailand Mexico Vietnam South Korea Russia Taiwan Egypt Japan India Iran Rest of World World Total Source: USDA
4.2 0.8 0.5 0.4 0.5 0.4 0.4 0.2 0.2 0.3 0.2 0.1 0.1 0.1 0.0 1.3 9.7
2.3 0.9 0.5 0.5 0.5 0.4 0.3 0.2 0.2 0.3 0.3 0.1 0.1 0.1 0.1 1.3 8.2
2.5 0.7 0.6 0.9 0.5 0.4 0.3 0.3 0.2 0.3 0.2 0.1 0.1 0.1 0.1 1.1 8.3
1.5 0.6 0.6 0.5 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.8 6.4
70
cents/lb.
Daily NY Nearby and A Index Prices: Last Three Months
NY Nearby A Index
65
60
55
50
45
90 80 70 60 50 40 30
cents/lb.
Monthly NY Nearby and A Index Prices: Last Three Years
NY Nearby A Index
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