Plenty of Paper Cotton

There will be plenty of cotton in the U.S. this year, based on the World Agricultural Supply and Demand Estimates (WASDE) balance sheet released Wednesday morning by USDA. On paper, production will be 19.2 million bales, the largest since 2007. But we also know that when paper gets wet, it isn't good for much. Too much water has been a problem for a swath of the Cotton Belt from eastern Texas into Tennessee and Kentucky and western Virginia, resulting in a slight delay in planting progress and questions about replanting in flooded areas of Arkansas and Missouri, in particular.

Is this the largest cotton production number we are likely to see for the 2017/18 growing season? Are we condemned to a 5-million-bale carryover in 2018 vs. the manageable 3.2 million bales old-crop ending stocks we are expected to be facing on July 31, 2017?

To answer those questions, or at least construct a hypothesis, we need to first look at acreage and yield, with a nod to consumption as well.

The 30-day rainfall map that accompanies this column highlights the problems with acreage. While most of No. 1 producer Texas has seen a benign (or even less than desired) 1 to 3 inches in the past 30 days, the states further east have been swamped. Meanwhile, parts of Oklahoma, Arkansas and Missouri received 10 to 15 inches of precipitation over the period. Soils are saturated, there are fields still flooded, and in some cases, the U.S. Army Corps of Engineers is still releasing extra water to manage lake levels. These areas represent 10.5% of the intended 2017 acreage from the March 31 report. A comparison of 2017 intentions to recent years is shown below, incorporating the final 2016 production changes announced Wednesday and the 810-pound average yield from the WASDE report.

Area, Yield, Production, Price per Unit, Value of Production ALL
COMMODITY	YEAR	PLANTED	HARVESTED	%HARV	YIELD	PRODUCTION
		Th. acres	Th. acres		pounds	1,000 bales
All Cotton	2008	9,471	7,569	79.90	813	12,815
All Cotton	2009	9,150	7,529	82.30	777	12,188
All Cotton	2010	10,974	10,699	97.50	812	18,104
All Cotton	2011	14,735	9,461	64.20	790	15,573
All Cotton	2012	12,314	9,372	76.10	887	17,315
All Cotton	2013	10,407	7,544	72.50	821	12,909
All Cotton	2014	11,037	9,347	84.70	838	16,319
All Cotton	2015	8,581	8,075	94.10	766	12,888
All Cotton	2016	10,073	9,508	94.40	867	17,170
All Cotton	2017E	12,233	11,380	93.00	810	19,200

With the three most afflicted cotton states representing 6.5% of the acreage, a total wipeout would move the production meter 1.26 million bales. However, it is more likely that those states would lose less than 10% of their production via a combination of prevented planting claims, replanting to another crop and depressed yield due to soil compaction and other factors. At 10% impact, we are talking a 126,000-bale swing. The export market can adjust for that in a couple of days. It is a big deal if it is your farm, but a 10% or 20% hit just in those states would have a minimal impact on the U.S. totals. But if we start to talk Texas, with 57% of the intended acreage, it is a little different matter.

USDA IS using a fairly aggressive U.S. yield number. An average output of 810 pounds per acre would be below the 30-year trend line, but still the eighth highest on record.

This is a good time to remind you that USDA's National Agricultural Statistics Service (NASS) is not yet computing state average yields for cotton in the U.S. This is all armchair stuff. For crops where they are surveying, such as winter wheat, the forecast was based on conditions as of May 1, even though some of the submitted surveys were after that date.

What about that demand side? The WASDE report bumped up current-year (2016/17) exports to 14.5 million bales. That exceeds the golden days of 2010, but not the record year of 2005 with 17.55 million bales shipped. Their number for 2017 is slightly more conservative at 14.0 million bales. This is a nod to an expected 750,000-bale increase in Chinese domestic production in 2017. Chinese imports are seen rising a modest 200,000 bales, probably due to needs for higher quality to blend with old stocks. Chinese stocks are expected to continue to decline to 39.65 million bales. That would get them down to 45.5% of the world surplus initially projected to be 87.14 million bales. That world number had threatened to go to a full year's use a few years back. But due to expanded use and the Chinese production management efforts, it would be down to a 75% stocks-to-use ratio by August 2018 in USDA's calculation.

It's possible to conclude that we might have seen the largest cotton acreage number of the year in the March intentions report, but that USDA is sufficiently conservative on yield for offsetting acreage and yield estimates to leave production over the 19-million-bale mark.

We're always forced to say "it depends on the weather" when looking at numbers in May. Trade relations with China will continue to be of importance, since they are a major buyer and USDA has them down to import more in 2017/18.

Alan Brugler may be reached at alanb@bruglermktg.com

(BAS/AG)

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