2022/23 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 modest changes to the world cotton balance sheet.  This resulted from month-over-month adjustments in only a handful of countries:

  • Central Asian production was raised a half million bales. Along with fewer exports that raised their ending stocks 880,000 bales.
  • U.S. ending stocks were lowered 600,000 bales (discussed below).
  • Australian ending stocks were 200,000 bales fewer owing to an increase in their exports.
  • Brazil ending stocks were 250,000 bales more from a reduction in their exports.
  • China saw 200,000 more production which was offset by 450,000 fewer imports.

The bottom line of all the world adjustments was fundamentally price neutral increase of 620,000 bales of world ending stocks, month-over-month.

The U.S. old crop cotton balance sheet was more significantly changed compared to last month.  On the production side, 2022 cotton harvested acres were lowered 130,000 acres, effectively raising U.S. abandonment to a record 46.9%.  Average yield per acre was raise several pounds.  The impact on U.S. 2022 cotton production was a 210,000 bale cut, month over month.  This cut squares the longstanding/former 14.68 million bale production estimate with the 14.5 bales classed and ginned.

On the demand side, U.S. exports were raised 400,000 bales to partially account for the historically high percent of total commitments to USDA’s export target.  The bottom line of all these adjustments tightened up U.S. old crop carry-out from 4.1 to 3.5 million bales.  The levels and the adjustment can be viewed as bullish/friendly.

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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