Well the highly anticipated June 30th acreage report was released and what was the reaction for cotton??? Slightly bullish is the term many are using. So, what does that even mean and what made us arrive at this description? Well let’s talk about it.
To fully understand what I’m talking about here let’s start at the beginning. The first report in March hit us with a cotton acreage number of 12.2M. This is over 20% more acreage than last year! 12.2M acres equates to a 19.2M bale crop versus 17.2M bales last year. Now that we have March out of the way, we can talk about June. Good Lord have mercy many of us were getting ready to pour drinks if the acreage number climbed higher! 12.2M was pretty lofty and some groups were estimating anywhere from 12.5-13M. Therefore, we were all strapped in and bracing ourselves for what would be released. Many thought that we wouldn’t hit the 12.2M for a variety of reasons and 13M was a bit outlandish. Well those folks ended up being right! The cotton community let out a collective “whew” when the number came in at 12.06M (a 178,000 acre reduction.) This is where the slightly bullish terminology comes in. Being that many were expecting an increase and we saw a reduction this was good news for the bulls BUT this is still a very large crop at 12.06M.
Even though this is a large crop at that level we still have to make that crop. The drop in acreage effectively took us down to an 18.4M bale crop versus the 19.2M. Then if abandonment (the amount of acres planted vs harvested) is elevated in the WASDE report in July we could whittle that down further. Many do expect an increase in abandonment with weather issues in West Texas and some areas in the South East. Abandonment was somewhat low in the June report at 7%. What it will be elevated to in July is unknown but every percent up we go the more that bale number goes down. Yield is the other elephant in the room. We are currently at 810 which is below the past couple year average, therefore a spike in yield could offset some of the abandonment we get thrown at us. Sounds like I am talking in circles….well I kind of am. This year the market has had contradictory forces weighing on it. There are 2 distinctly different narratives in the market one bullish and one bearish. As I have said in prior posts – Who will win? I don’t know. We have to watch this crop develop and see how steady demand remains. We have saw parabolic moves upward and a downward spiral. Keep watching because the drama isn’t over yet. Weather markets here we come!
Stay tuned for more updates. Next update will include the price movement after this acreage report release.
To view the acreage report referenced click here.