2023/24 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:

Updated world cotton supply/demand.  USDA’s month-over-month adjustments in the May WASDE report reflected mostly minor adjustments to the old crop world cotton balance sheet, which is not unusual for the latter marketing year period.  However, world beginning stocks were 2.19 million bales fewer than for the previous month, mostly in Brazil (-1.74 million) and India (-500,000).   The May adjustments saw 650,000 more bales of world production, month over month, India (+500,000) and Australia (+200,000), less Central Asia (-40,000) and the U.S. (-30,000).  World imports were  raised 40,000 bales owing to a number of small adjustments in a number of countries.

On the demand side, world exports were raised 510,000 bales compared to the previous month, and likewise spread across a number of countries.  World consumption was raised by 540,000 bales, mostly in India (+700,000) and China (+500,000), and whittled down by cuts in a number of countries.  The bottom line of all these net adjustments was a net 2.6 million bale cut in world ending stocks, month over month. The direction and resulting level of the adjustment would be price supportive according to history and economic theory.

Updated U.S. cotton supply/demand.  The May U.S. balance sheet for the 23/24 marketing year was changed slightly from the previous month.  U.S. old crop production was cut 30,000 bales to square with ginning and classing data. U.S. domestic consumption was increased 50,000 bales.  The net effect was a 100,000 but in U.S. ending stocks, to 2.5 million bales. This level of ending stocks is historically tight, the monthly adjustment is price neutral.

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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