2021/22 Fundamentals and Outlook

Fundamental analysis involves comparing major supply and demand variables like production, consumption, and ending stocks.  This is usually based on organized tables, the prime example of which are published by USDA, and reproduced below:

The May WASDE report  showed yet another round of incremental adjustments the 2021/22 world old crop cotton balance sheet.  World production was 1.75 million bales higher, month over month, mostly in India (-1,000,000), and Central Asia (-650,000).  The trade categories were 330,000 (imports) and 290,000 (exports) bales fewer, month over month, spread over seven or eight countries.  Domestic consumption changes involved month-over-month bale reductions in Central Asia (-560,000), China (-500,000),  Pakistan (-200,000), Vietnam (-100,000), and Brazil (-30,000).  The bottom line was that world ending stocks rose a modest 270,000 bale adjustment, month-over-month, which is fundamentally price neutral in the monthly change.

The U.S. old crop cotton balance sheet (see Table above, column 3) saw minor changes compared to April with a 100,000 bale cut in U.S. production.  With no changes to domestic consumption, exports, or unaccounted, the production adjustment went straight to the bottom line, lowering U.S. ending stocks to 3.4 million bales.  This is modestly bullish in the adjustment and the tightening stocks level.  The projected marketing year average price received by upland producers was raised a cent to 92 cents per pound.

Fundamental analysis is fairly straightforward in its application.  However, there are a lot of moving parts and uncertainty in balancing supply and demand variables.  The price outlook can also be influenced by non-fundamental factors, particularly in the short run.

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