Cotton is an important plant used
in the manufacture numerous products, but primarily used in the production of
fabrics. The crop is planted in a number of countries, with China, India, and
United States being the top three producing countries. They produced 6.5
million tons, 6.4 million, and 3.5 million tons respectively every year. The
biggest demand for the crop is from Asian countries like China because these
are the countries which produce the most fabric.
As with all commodities, the
price of cotton depends on the demand and supply. As the world’s population has
continued to grow, it has led to more demand for fabric. In fact, the world’s
population has more than doubled in the past 50 years. However, this demand has
not translated to higher prices because science has created alternatives to
cotton.
Yesterday, the price moved
slightly higher after the United States Department of Agriculture (USDA) released
the World Agricultural Supply and Demand Estimates (WASDE) report. This is a
monthly report which gathers data from other organizations with the goal of
providing guidance to the industry.
The report showed that for
cotton, there was low consumption and higher ending stocks in March. In the
United States, the consumption was about 3.1 million bales, which was the
lowest level since the 1890s. The ending stocks were forecasted at 4.4 million
bales, which was a slight increase from the previous estimate. The statement added that:
Lower world consumption this month results in higher projected 2018/19
ending stocks, with little net change in the other components of the global
balance sheet. World mill use is forecast about 400,000 bales lower this month.
A 300,000-bale decline in Turkey – and smaller declines in the United States
and Vietnam – more than offset smaller increases elsewhere. Lower imports for
India, Turkey, and Vietnam are largely offset by an upward revision for China.
Lower exports for India and Burkina Faso are largely offset by Australia and
Turkey. Higher production for China is largely offset by a decline for Burkina
Faso.
In the annual chart below, the price
of cotton has risen from a low of $69.50 to a high of almost $80. This price is
above the 21-day and 42-day moving averages while the signal line of the MACD
has continued to move higher. The same is true with the Fisher Transform
indicator as shown below. The price will therefore likely continue moving
higher ahead of the next WASDE report. It may also depend on when the US will
announce a deal with China.
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