2022/23 Outlook Caveats

Policy Uncertainty. The last ten years have been a case study in how foreign government policies have influenced the cotton market.  Several major examples are India’s domestic minimum support price program, the 2018 U.S. farm bill, the U.S.-China Phase One Agreement, the U.S. Market Facilitation Program, and the U.S. CARES act funding.

Supply Uncertainty.

The supply question for the 2022 crop is still an open question.

In August, USDA cut an historically large three million bales off of their previous month’s forecast.  The direction of that adjustment was not a surprise to anybody, but the size of it surely was.  Then, in September, USDA’s National Agricultural Statistics Service (NASS) reversed themselves and added one a quarter million bales back to their estimate of U.S. cotton production, now at 13.83 million bales of all cotton (i.e., upland and pima combined).

We can expect the forecast to get more accurate going forward.  The reason for this is rooted in three sources of future information.  First, as we saw in USDA’s September forecasts, available USDA Farm Service Agency certified acreage data were used to revise forecasted planted acreage.  This alone was the main reason for the September upward revision to U.S. cotton.  New certified acres data from USDA-FSA sometimes arises later in the fall or winter, so this remains a possible source of refinement.  Second, USDA NASS surveyed more than 7,000 U.S. producers, including major cotton producting states.  This survey process includes what they call “objective yield surveys” for major crops.  For cotton this means boll counts from randomly selected field samples in September which are repeated in October, November, and December.  So again, this data flow suggests a more accurate forecast U.S. cotton production over time.  Third, USDA NASS also reports monthly on cumulative bales ginned, which is another independent (albeit lagged) measure of U.S. cotton production.  Altogether then, we can expect fewer surprises and an increasingly clearer production picture.  This expectation is supported by historical data.   Figure 1 shows the percent deviations of USDA’s U.S. cotton production forecasts in August, September, November, and December, relative to the final production estimate at the end of the marketing year (i.e., the following July).  As expected, the spread of the percent deviations shrinks across the fall season, presumably informed by the previously described data flow.

The progress of the U.S. and Texas crops varies by region.  Harvest is wrapping up in South Texas and will progress from the central to the more northerly regions.  The week ending September 30 saw mixed and some extreme rain events across the Cotton Belt (see recent 7-day accumulation).   On the minus side, this rain is generally unwelcome for areas with pre-harvested cotton.  Longer term, the weekly drought monitor belies an extreme deficit situation (for both the 2022 and 2023 crops). Texas’ weekly field assessment summary (click here and scroll down) highlighted mainly hot and dry conditions across Texas.    Through October 2, the rate of boll opening and harvest were 4% and 5% ahead of the historical paces, respectively. F0r the U.S. crop condition, 31% was rated good/excellent, with 23% rated fair and 46% rated poor/very poor.  Texas continues to pull down the U.S. average with much poorer ratings, although history shows there isn’t a great correlation between weekly condition ratings and average yield (see Texas chart below).  The aggregate Texas cotton condition index is now down at 35; it was 32 at it’s lowest in 2011.

Demand Uncertainty.  For U.S. cotton, the two main demand categories are domestic mill use and exports.  Domestic U.S. consumption is forecasted by USDA at 2.30 million bales. Exports are generally a more important source of demand as they represent 84% of projected total use of 2022/23 U.S. cotton.  The main indicators of export demand are weekly sales and shipments of U.S. cotton. For the week ending September 29, weekly U.S. net export sales for the current 22/23 marketing year were stronger than in prior weeks, but not spectacular.  This is somewhat unexpected (or at least lagged) given the recent weakness in cotton prices, not to mention the earlier, substantial decline in prices (circa June).  The pace of actual export shipments of all cotton (i.e., upland and pima combined) has started off the marketing year strongly, have recently fluctuated and were below par for the week ending September 22.




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