The Memphis merchant said USDA’s Oct. 11 report assessing U.S. cotton production at 18.1 million bales (as of Oct. 1) was in line with his expectations, as well as USDA’s estimate of 11 million bales in exports and domestic use of 7.9 million bales, although the latter “might be slightly on the higher side.”
USDA’s carryover of 6.8 million bales was also in line with Dunavant’s estimate as of Oct. 1. “But that number is going to change somewhat in the next month, perhaps to 6.6 million bales,” he said, speaking at The Seam’s Cotton Market Update in Memphis.
However, Dunavant pointed out that USDA’s numbers did not reflect effects of excessive wind and rain on the Mid-South and Southeast cotton crops after Oct. 1.“Our economists believe that without additional rain, the crop will be down another 350,000 bales, which would reduce the carryover to 6.25 million bales on Aug. 1, 2003.”
Dunavant’s assessment of world carryover at 38.9 million bales is a little lower than USDA’s assessment of 39.8 million bales, although Dunavant does include U.S. adjustments previously mentioned while USDA doesn’t.
The torrential rains will surely create a lot of quality problems for Mid-South and Southeast growers, according to Dunavant. “The trade owes a lot of 31 grade cotton out of the Memphis and Southeast crops to Mexico. We’re not going to see 31s to speak of. We’ve gone from 31s to 41s, and now we’re going to 42s.
“We need to find a way to negotiate with the buyers to take a different quality. I think the domestic mills can use the 42s. I hope this last rain (Oct. 10) hasn’t put it down another color grade to 52s.”
Dunavant estimates that 60 percent of the Mid-South and Southeast cotton crops were still in the field as of Oct. 11, “and growers probably won’t get started harvesting again until next week.
“Lots of cotton will go into the loan,” according to Dunavant. “The better cottons will sell.”
The merchant noted, “There is a large volume of pent-up demand in the export market waiting for the proper time to buy. We get bids every day, but we can’t consummate the bids because they’re under the loan rate and we’re not willing to sell cotton under the loan rate.
“But if you look at what the “A” Index has done, we will probably have another Step 2 marketing certificate in two weeks. Then maybe some of these prices will work.”
Major markets for U.S. cotton will continue to be China, Turkey and Mexico, according to Dunavant.
The merchant believes China will import 2 million bales of cotton from the United States and in the world in the coming marketing year. “They have bought 180,000 bales of U.S. cotton in just the last five weeks. The big volume will come after Jan. 1, after they harvest their crop and see what kind of cotton they want to buy.”
This is likely to be “lots and lots of very high grade cotton,” primarily from the San Joaquin Valley and Arizona varieties.
Dunavant pegged China’s production at 20.5 million bales with 26.2 million bales of consumption. “We think it could be even better than that because they are blowing and going on cotton consumption today and will continue to grow cotton consumption.”
Cotton prices will trade in a range between 42 cents and 47 cents, according to the merchant. “I don’t see the market moving higher until after we get into 2003 and new business materializes. Certificated stocks are around 380,000 bales to 385,000 bales. I think the stocks have value because they contain lots of high grade Texas-quality cotton. But it won’t be until May, when the futures contracts (specifications) change and there is a heavy penalty put on the certificated stocks. That’s 2 cents if the cotton is one year old, 4 cents if it’s two years old.”
“There is still a surplus of cotton in the world and the United States,” according to Dunavant. “But we’ve come down from 7.6 million bales, when cotton was trading at 28 cents to 32 cents a pound. We’re moving in the right direction.
“Why is cotton at 43 cents today. It’s because consumer confidence around the world is so poor,” the merchant added. “The buyings are out there, but nobody wants to step out there. Sept. 11 has left a deep imprint on all of us.”
Dunavant believes that Australian cotton production, which dropped from 3.25 million bales last season to 1.8 million bales this year, “is a crisis. It’s the worst drought in the history of the cotton-growing region of Australia. Australian cotton is one of the premium cottons in great demand throughout the world. The loss is going to put some real pressure on the marketplace sometime after Jan. 1.”