wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(November 7, 1997) COTTON: Stock traders are having all the fun. All we do is to search the books to see how tight these ranges are. This was, if you didn't already know it, the second biggest weekly change in the December contract in five weeks: twenty five points! The range for the week, an even hundred points, was the smallest since July. Today's range of thirty points, along with a few other days, is the smallest in over a year. No sense going through more records for more agony.
The real agony may come Monday morning if the USDA adopts the new ICAC estimate for the Chinese crop. There is a difference, after all, of almost two million bales. The ICAC reports that stories from all over the country suggest the crop is unchanged from last year, with a record crop up in Xinjiang, and little damage from an early drought in northern China. Observers on the scene tell us that arrivals of cotton are running fifty to one hundred percent ahead of last year.
Because of this larger crop, ICAC estimates China's imports will run better than a half million bales behind the current USDA data. As we watch that play out, we've taken a look at how we stand with our eight major customers. The first column are our upland commitments, the second the total cotton shipped last year, all in 480's. The third column shows our progress:
Mexico 1,046,000 733,000 143% Japan 571,000 630,000 91% S. Korea 488,000 568,000 86% China 427,000 1,756,000 24% Indonesia 259,000 594,000 49% Canada 255,000 253,000 101% Brazil 217,000 190,000 114% Turkey 200,000 411,000 49%
The numbers suggest that those who say Mexico is about done for the year can't be far from wrong. Surely that's close to the truth with Canada and Brazil. If we look to China's leadership from this point on, it will be a long winter. Reaching the USDA export estimate does not look difficult from a statistical point, even plugging in the 500,000 or so bales which we have on average rolled over the past three seasons. Yet, the burden of proof remains with the bulls.
The major story for the season will continue to be El Nino. Will it happen or not? It didn't happen in India or China this season, but it did in Indonesia. It is happening in South America, with exceptionally heavy rainfall in Argentina and southern Brazil (32 inches at one soybean station since October 1st), searing temperatures in northern Brazil, dryness building in South Africa, perhaps the first major Pacific storm aiming at our northern coast the middle of this coming week. When Larry King does his whole show on this and FEMA establishes a toll-free number, you know it's on its way. Pacific temperatures are running 4½ degrees above normal, the most extreme since 1952-53. The SOI has built back up. This could be interesting. And, yes, we are closed the 28th.
Herman S. Kohlmeyer for Ernest Simon
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