2018/19 Fundamentals, Outlook, and Caveats

It is never too early to begin thinking and planning for next season.

The futures market is the best available indicator of supply and demand expectations for the 2018 crop.  2018 cotton futures have generally traded below those for the 2017 crop (see the graph above).  For the week ending September 15, that inversion was 1.06 cents per pound.  The May’18 and Jul’18 contracts are also inverted over the Dec’18.  That suggests that traders expect excess supplies of cotton could be a little larger in the 2o18/19 marketing year.  This could easily result from having large crops and greater carryover in the U.S. and around the world following the 2017 crop.

Other factors come into play, such as the increase or decrease in U.S. cotton acreage in 2018.  The graph below shows the relationship of U.S. cotton acreage to a ratio of corn prices (Dec’18 CBOT futures) to cotton prices (Dec’18 ICE cotton) in the first quarter of the year.   Based on the current level of that ratio (5.8, circa Sept. 22) we might expect a middle level of cotton plantings around 12 million acres.  That represents little change over what U.S. growers planted in 2017.  Assuming demand influences are similar, this sounds like a recipe for more of the same in terms of ending stocks and prices.

Another reason to expect at least the same level of cotton acreage is that major regions of the country (West Texas, Mid-South) are so far having a record-breaking kind of year.  That kind of vibe tends to be self-reinforcing.






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